Broker tips: Unilever, Johnson Matthey

Analysts at Berenberg raised their target price on consumer goods giant Unilever from £36.50 to £38 per share on Wednesday following a "big" first-quarter beat for the firm.

Berenberg said Unilever delivered had delivered 7.3% organic growth in the quarter, ahead of consensus estimates of 4.3%, principally driven by a pricing increase of 8.3% that offset a 1% volume decline.

The German bank noted cost inflation was now guided to be €4.8bn for 2022 and as Unilever has been "a first-mover" in relation to its pricing actions, uncertainty about the extent of volume erosion in subsequent quarters and the speed and magnitude of margin recovery had weighed on sentiment.

However, Berenberg stated Unilever management was "optimistic" that volume erosion will be contained in the low-single digits, and that percentage margins can be restored to unquantified "pre-inflation levels" by the 2024 trading year, assuming inflation moderates.

"Margins for FY22 are now expected to be at the bottom end of the 16-17% range and organic growth at the top end of the 4.5-6.5%. Accordingly, we think there is limited upside to the current 17x FY23 P/E," said Berenberg, which stood by its 'hold' rating on the stock.

The analysts added that reports of activist shareholders presented "a potential catalyst", though it acknowledged that Unilever management would not confirm whether any discussions had actually taken place.

Jefferies upgraded shares of Johnson Matthey on Wednesday to 'buy' from 'hold', lifting the price target to 2,600.0p from 2,100.0p after Standard Investments took a stake in the company.

Last week, New York-based Standard Investments took a stake of around 5% in JMAT.

"There is no communication from the investor (aside from the disclosed investment), but this follows a track record of active investment in Chemicals globally, Europe and in catalyst markets (Clariant)," Jefferies noted.

"Most relevant is its recent acquisition of WR Grace (major process catalyst producer - similar to JM's ENR process technologies business) last year at a 74% premium to the undisturbed price."

The bank said Standard Investments "would appear to be something like an ideal owner" for the JM business.

"This is given its operational overlap on the process catalyst side (not an antitrust issue in our view) and an ability to take a longer-term view on cash generation potential from the Clean Air business."

Jefferies also said that higher platinum group metals prices will likely offset weaker auto production in the shorter term.