Unilever gets a leg-up from Berenberg upgrade

LONDON (ShareCast) - (ShareCast News) - Unilever (NYSE: UL - news) shares rallied as Berenberg lifted its stance on the stock to 'buy' from 'hold' with an unchanged price target of 3,050p. It (Other OTC: ITGL - news) said with peer multiples diverging from parity to the widest level since 2008, a valuation entry point has opened up, offering 20% upside.

Berenberg said Unilever's 17.8x 2016 price-to-earnings ratio is two standard deviations below its historical market premium and at trough levels relative to the household and personal care and food sectors, despite net upgrades year-to-date and an increased weight of HPC profits to nearly 60%.

"Our forecasts do not assume a quick rebound in emerging-market growth, but we believe Unilever is past the trough of group organic growth. It provides margin momentum, improving return on invested capital and free cash flow generation, with net M&A increasingly accretive," said Berenberg.

It said that despite forex and inflationary pressures, Unilever consistently delivers positive reported earnings per share growth. It noted that since 2002, Unilever's reported EPS growth has been positive every year, except 2009. Berenberg forecast a 9% compound annual growth rate to 2017.

At 1121 BST, Unilever shares were up 3.6% at 2,630p.