Berenberg raises target price on Unilever

Berenberg said Unilever delivered had delivered 7.3% organic growth in the quarter, ahead of consensus estimates of 4.3%, principally driven by a pricing increase of 8.3% that offset a 1% volume decline.

The German bank noted cost inflation was now guided to be €4.8bn for 2022 and as Unilever has been "a first-mover" in relation to its pricing actions, uncertainty about the extent of volume erosion in subsequent quarters and the speed and magnitude of margin recovery had weighed on sentiment.

However, Berenberg stated Unilever management was "optimistic" that volume erosion will be contained in the low-single digits, and that percentage margins can be restored to unquantified "pre-inflation levels" by the 2024 trading year, assuming inflation moderates.

"Margins for FY22 are now expected to be at the bottom end of the 16-17% range and organic growth at the top end of the 4.5-6.5%. Accordingly, we think there is limited upside to the current 17x FY23 P/E," said Berenberg, which stood by its 'hold' rating on the stock.

The analysts added that reports of activist shareholders presented "a potential catalyst", though it acknowledged that Unilever management would not confirm whether any discussions had actually taken place.