RBC Capital upgrades Unilever to 'sector perform'

(Sharecast News) - RBC Capital Markets upgraded Unilever on Tuesday to 'sector perform' from 'underperform' as it said its reservations about the disposal of the food business are fairly reflected in the current share price. The bank said that while it's "certainly not blown away" by the disposal of the food business as it will result in a minimal control premium, a convoluted structure leaving shareholders holding shares they didn't sign up for and management distraction, these reservations are fairly reflected in the share price.

RBC said it isn't sure the move is worth the disruption. It estimated that Unilever will end up with a relative market share across its portfolio of 130, that is, it will be 30% bigger than its nearest competitor, on average, across its categories and geographic markets.

"That's exactly the same result we obtained when we did this exercise before the divestment of ice cream and food," the bank said. RBC said management argues that it's worth it, as Unilever will be focused on higher growth categories.

"We sympathise, but feel that proposed changes to Unilever's remuneration policy raise questions," it said.

"For instance, there's no stipulation for organic volume growth (compared with guidance of 2%), and the annual bonus and PSP start paying out for sales growth well below the 4-6% Unilever aspires to.

"But with consensus forecasts at the bottom end of 4-6%, and volume growth fractionally in excess of 2%, it could be argued that both investors and Unilever's remuneration committee are starting to agree that Unilever's guidance is optimistic."

RBC pointed out that consensus forecasts are at the bottom end of the guidance range for volume and sales growth, and its forecasts are below that.

It said consensus expectations already reflect caution about the growth trajectory, while its sub-consensus forecasts yield an unchanged price target of 4,200p.

At 1237 BST, the shares were down 0.3% at 4,256.35p.