ECTOR UPDATE | Food & HPC | Diversity and healthiness

SECTOR | Food & HPC | Diversity and healthiness

Nestlé: Buy vs. Neutral; FV: CHF118 vs CHF103

• Despite its strong performance over the past few months, we think the company is the best option in the food sector. Nestlé should outperform peers in the coming quarters due to its attractive profile in the current environment (made up of low exposure to emerging markets, defensive categories and a predominantly mainstream/affordable positioning) and portfolio changes to come (with potential disposals of underperforming assets). We upgrade the stock to Buy and our FV to CHF118 (CHF103 previously).

• Danone: Buy vs. Neutral; FV unchanged at EUR70

• The stock looks cheap on most multiple metrics. We view it as a way to play the growing healthy trend and are more than encouraged by better prospects at its first division, EDP, which represents 52% of total sales. Note that, contrary to the past, the company’s top line objectives for the mid-term are now fully achievable. Danone now targets an organic sales growth of 3-5% vs 4-5% previously. We upgrade our recommendation to Buy. Our Fair Value is unchanged at EUR70.

• Unilever: Neutral vs. Buy; FV: EUR51 vs EUR55

• Even though we find the company’s HPC positioning highly attractive in the mid-term, we think this represents a disadvantage in the short term as this segment is more discretionary than foods and beverages. Besides, Unilever should suffer from its over-exposure to emerging markets. As a consequence, we cut our recommendation to Neutral from Buy. Our Fair Value is adjusted downwards from EUR55 to EUR51.

• Note that all our new valuations take into account the new assumptions of the BG research office i.e. a risk free rate of 0.6% vs 1.6% previously and a risk premium of 7.9% vs 7% previously.