Xiaomo maintains Unilever (UL.US) “gain” rating: the new mid-term framework strengthens the quality of growth, and high-single-digit EPS growth is expected to drive revaluation

The Zhitong Finance App learned that J.P. Morgan Chase published a research report to maintain the Unilever (UL.US) “gain” rating, and set its target price for European stocks at 65 euros and 5,700 pence for British stocks. According to the report, on the eve of Capital Markets Day (CMD), Unilever announced a new medium-term growth framework after the divestment of the food business and an operating model centered on “global strategy and local execution.” The bank believes that the new target strengthens the quality of the company's growth plan, and that the productivity savings target will also help strengthen the market's confidence in its profit promotion space.

Unilever said that the group's medium-term target is to achieve 4%-6% organic sales growth, which includes at least a 2% increase in sales. This target is consistent with the company's previous statement on the growth potential of the core family and personal care business (Core HPC), and is also in line with the current market's general expectation that organic sales will grow by more than 4% in the 2026-2032 fiscal year.

The company also expects a moderate expansion of the underlying operating margin, supported by productivity savings of £1 billion by fiscal year 2029. The savings will come from the elimination of stranded costs associated with food transactions, as well as broader organizational simplification.

For the 2027 fiscal year, management expects the performance to fall within the above medium-term growth plan; J.P. Morgan currently predicts a 5.6% increase in core organic sales and a profit margin narrowing by 22 basis points year-on-year (simulated caliber), and believes that this guideline confirms the market consensus for the 2027 fiscal year.

In terms of operating model, Unilever will maintain a streamlined group center focusing on portfolio focus, long-term resource allocation, and global scale of power brands (Power Brands); operations and commercial execution will be decentralized to the local market. The market will be organized into six performance units, each headed by a regional president with full profit and loss responsibility for each category.

The new leadership team is mostly from existing organizations, and the North American president is the only external appointment. He is expected to join on January 1 of the following year and will be officially announced in the next few weeks.

Unilever said the new model aims to combine a centralized global strategy with local execution capabilities, promote portfolio focus and simplification, and utilize market-leading brands and high-end digital up-and-coming brands. CEO Fernando Fernandez said, “Our new operating model will combine a centralized global strategy with excellent local execution, with the goal of achieving portfolio focus and simplification to take full advantage of our market-leading brands and high-end digital disruptors. We are starting from a strong position, and our priority is to achieve sustained, competitive sales volume driven growth and steady hard currency profit expansion.”

With the implementation of the new operating model, Unilever's reporting caliber will also be adjusted. The company will now report under three categories: beauty and personal care, home care, and others; geographical disclosures will cover five regions: North America, Europe, Latin America/Africa/Middle East/Turkey, India, and Asia (merging Northeast Asia and South Asia Pacific). J.P. Morgan believes that this adjustment will help investors more clearly track the execution performance of various categories and regions.

J.P. Morgan Chase said in the research report that Unilever is seeking a shift to a sustainable growth model after updating the business unit leadership, revising the incentive structure, and focusing more on value creation (indicators linked to USG, ROIC, and TSR). As these changes are gradually reflected in operations and delivery, sales growth along with improved gross margin will drive an increase in operating profit margins, which is expected to achieve high single-digit EPS growth in the medium term and help stock revaluation; at the same time, lower net debt/EBITDA also increases the potential to enhance total shareholder returns through repurchases.