UBS stays at sell on Unilever, cites concern about 'deterioration' of market share

Analysts at UBS reiterated their 'sell' recommendation on shares of Unilever, expressing to clients their concern over the "quality" of the company's margins in the back half of the year, which they said implied a "substantial" reduction in its marketing spend.

First, UBS noted that the company's announcement of a near 100 basis point decline in gross margins year-to-date implied a roughly 150-200bp drop for the third quarter despite a quarter-on-quarter increase in pricing from 1.3% over the first six months of the year to 4.1% over the three months to September.

Furthermore, the consumer goods giant had also reiterated its guidance for full-year 2021 operating margins to be "around flat" year-on-year thanks to multiple factors.

Those included revenue growth management initiatives, savings from efficiencies, some benefit from the unwinding of the Covid-19 on costs and mix and from adjusting Brand and Marketing investments.

But the analysts were now concerned that Unilever might lose some market share after several large fast-moving consumer goods rivals, such P&G, Loreal or Nestle, had flagged their intention to ramp-up marketing spend.

"We worry that Unilever's decision could soon translate into some deterioration in market share development and/ or does simply evidence a less marketing intensive portfolio with limited scope for premiumisation relative to peers."

UBS kept its target price for Unilever at 3,700.0p.