Unilever's spreads sale benefits will take time to emerge - Jefferies

Unilever's €6.8bn agreed sale of its spreads business late may have seen barely a ripple in the share price but the long-term benefits for the company will be significant, said analysts at Jefferies on Monday.

Jefferies said the deal, a sale to private equity group KKR announced by Unilever just before market close on Friday, was the deal that the market has been wanting and was executed on the market's desired terms, with a total transaction value of €6.8bn (£6.0bn) at trailing valuation of 10 times EBITDA, with estimated net cash proceeds of €6.1bn after anticipated 10% tax.

With completion by mid-2018, the deal is forecast to be 7-8% dilutive to earnings per share in the first full year due to €250-300m of stranded costs, with 4-5% dilution long term.

Margin dilution will be around 60 basis points at the outset, Jefferies said, but "negligible" in the longer term and "no impact" on the group's stated goal of 20% margins by 2020.

"We estimate that recycling the net sale proceeds into a buyback would limit earnings dilution to circa 2% long term," analysts said, with this and a further 'normal' buyback of €5bn in 2018 still leaving the balance sheet within its target net debt ceiling.

While this was the deal the market has been wanting, Jefferies called for investors to "spare a thought for historical resonances".

"Margarine Union, one half the original foundation of Unilever in 1929, along with Lever Brothers, is going. Bruised emotions and wounded pride in the Netherlands will be smoothed by the location of the Foods & Refreshment Hub to Vlaardringen. But the positive takeaway for bulls like us is that ULVR is willing to continue to slay sacred cows, in pursuit of growth and value."