We reviewed our model on Unilever and maintain our Buy recommendation on the stock. We reduced our price target from €56 to €53.50.

Our valuation model assumes continued improvement in operating margins in the foreseeable future mainly coming from a cost saving program and we are of the view that the Group is on track to meet its 2020 EBIT margin target of 20%.

Its 58% Emerging Market sales exposure also continues to be a standout competitive advantage for the Group.

With the second €3bn tranche of its buyback (also factor into our valuation), we think this combination is an attractive investment proposition.

What we like about Unilever NV

  • Unilever makes 58% of its turnover in emerging markets, which although can be a risk if these markets were not to perform, provide a good opportunity for Unilever to sustain and increase their volumes. Unilever’s target market is the middle class and in emerging markets more people are going from lower to middle class status.
  • Operating costs have decreased and we expect this trend to continue given the internal policies, such as the supply chain savings programme that management has put into place.
  • Operating margins increased in 2 out of 3 departments (Beauty & personal care & Home Care). Unilever is a market leader within the Beauty & personal care industry and increases in operating margins is a good sign towards the overall profitability of the company. We expect operating margins to keep on increasing in the near future mainly due to decreasing operating costs.


  • Our 12-month price target of €53.50 per share assumes a discount rate of 10% and a forward P/E multiple of 22x.
  • Revenue – we expect revenue growth of -2%, 2% and 2% in 2018, 2019 and 2020 respectively. The -2% growth in 2018 is mainly due to adverse currency movements in emerging markets, which is impacting sales negatively in 2018. We expect this to improve post 2018 when trade war fears settle.
  • Operating Margins – We expect operating margins of 18.15%, 19.15% and 20.15% in 2018, 2019 and 2020 respectively. The Group has an EBIT margin target of 20% in 2020 and we believe Unilever is on track to achieve this target (assuming the trade war does not intensify further from this point onwards).
  • Share buyback – The company plans to return the €3 billion share buyback programme by the end of 2018. We are assuming that shares will be bought at an average price of €50 per share.
  • Earnings per share – we are assuming an EPS figure of €2.31, €2.49 and €2.68 in 2018, 2019 and 2020 respectively.


  • Underlying sales growth is expected to be within the range of 3 to 5% for the full year, which is expected to contribute towards an improvement in underlying operating margin and strong cash flows.
  • The Group also announced the setting of a long term goal towards an underlying operating margin target of 20% by 2020, supported by an increase in expected cumulative savings during the three-year period 2017-2019 from €4 billion to €6 billion.
  • The company plans to return the €6 billion share buyback programme by the end of the year (2018) with €3 billion already paid out.
  • Unilever has signed an agreement to buy a 75% stake in the Italian personal care business Equilibria.