Societe Generale upgraded Unilever on Wednesday to ‘buy’ from ‘sell’ and lifted the price target, citing the company’s new strategy and a projected 12-month total shareholder return of 20.5%.
The bank noted that since news over the weekend that Unilever had made an informal offer for GlaxoSmithKline’s consumer health business at £50bn, the shares are down 11%, wiping around £10bn from the market cap.
SocGen said the offer to GSK looks “clumsy”, with Unilever unable to control communication on its strategic shift due to the leak.
“We have been hoping for greater management focus on a portfolio that was increasingly poorly positioned to leverage UNA’s strong global distribution,” it said. “The GSK consumer health approach may not be perfect, and we suspect that the GSK CH timing was partly triggered by disappointment to consensus expectations for the existing business in 2022-23.
“But at £35/share (our previous target price) this is discounted. We expect medium-term perception shift for longer term value creation as UNA’s vision and renewed metrics are better articulated.
“Thus, in our discounted cash flow, we now apply an exit EV/EBITDA multiple of 13.5x vs 11x before and increase our target price to £41 from £35. Specifically, this also captures the potential retained synergies value (estimated £6bn) if UNA gets GSK over the line sub £55bn (a level we suggest would be accepted).”
At 1450 GMT, the shares were up 3.8% at 3,650p.
