Barclays upgrades Unilever to 'overweight'

Barclays upgraded Unilever to ‘overweight’ from ‘equalweight’ on Thursday and lifted the price target to 4,600p from 4,300p, turning more positive on the stock having digested chief executive Hein Schumacher’s strategy update and targets.

"There's much to do and it will take time but new CEO Hein Schumacher comes across as a real operator who understands the challenges," the bank said.

"There have been false dawns but we see a path forward and on 16x 24E PE, with expectations tempered, Unilever could finally unlock real value."

Things might not get better quickly given a weak starting point, with only 38% of the company’s global portfolio winning share at present, Barclays said, but the bank expressed confidence that there is urgency and clarity in the new CEO’s plans, even if the content of the plan was not new.

"It's early days, but our sense is that Hein Schumacher has the best chance of actually delivering on the promises that long-standing Unilever observers have heard numerous times before," the bank said.

"We think there is a line in the sand drawn and to us the risk/reward here looks interesting, especially given there are more drastic Plan B options that could be considered if Plan A doesn’t start delivering relatively quickly."

Barclays said the big difference this time round is that there is no big bang restructuring announcement or upfront spend and this time Unilever is doubling down on just 30 brands that make up 70% of group sales.

"These 30 brands include its 14 billionaire brands as well as other promising brands such as Liquid IV and Nutrafol that could become the billionaire brands of the future," it noted.

"Moreover, we think the new five-category organisation is a much more logical way of running a consumer giant like Unilever and optimally allocating resources."

Barclays said Unilever was "going full Procter & Gamble".

It said there was a number of things it heard from Hein Schumacher that have come "straight out of the P&G playbook".

"Unilever is now talking about brand superiority across every vector, not just technical superiority which is what it was anchored on before. Consumers care about every aspect of brand, not just whether the technical efficacy is superior to the competition."

Barclays said it has taken a long time for the penny to drop on this point.

"Unilever is also now talking about really differentiated R&D and consumer insight that can be scaled, which drives category growth not just ‘stealing share’. Obviously, saying this and doing it consistently are two different things but we were encouraged by the clarity on this crucial point."