Unilever's ice cream sale unlikely to get investors flocking, says leading bank

UBS maintains a 'sell' rating on Unilever (ULVR), suggesting that market optimism regarding the upcoming ice cream spin-off, The Magnum Ice Cream Company (TMICC), is already priced into the stock. Despite TMICC's €8.3 billion revenue and €1 billion operating profit last year, UBS highlights underperformance relative to peers and exposure to commodity prices and shifting consumer preferences. The firm questions TMICC's ability to close the profitability gap with competitors and the future of Ben & Jerry's, whose activism poses potential market limitations.

Analysis

UBS has maintained a 'sell' rating on Unilever PLC (LSE:ULVR), establishing a 12-month price target of 4,000p, which represents a notable downside from its current trading price of 4,637p. The bank's rationale is that market optimism surrounding the forthcoming spin-off of Unilever's ice cream division, to be named The Magnum Ice Cream Company (TMICC), is already factored into the existing share price. TMICC, which recorded €8.3 billion in revenue and €1 billion in operating profit in the previous year, is slated for a debut across Amsterdam, London, and New York exchanges in late 2025. Despite this strategic move, UBS highlights the division's historical underperformance against competitors like Froneri concerning both volume growth and profit margins. The analysis further underscores TMICC's vulnerability to commodity price fluctuations, regulatory pressures, and shifts in consumer demand. Two critical questions are expected to influence market sentiment: TMICC's capacity to enhance its profitability relative to rivals, and the future status of Ben & Jerry's, whose social activism could impede its market expansion or necessitate a separate divestiture. While UBS acknowledges that the spin-off might yield a slight improvement in the core household goods group's margins and returns, it posits that these potential gains are already reflected in Unilever's current valuation, with macroeconomic uncertainties and execution risks persisting. Unilever's shares remained largely unchanged at 4,635.17p in afternoon trading following the assessment.

Key Decisions for Investors

• Given UBS's 'sell' recommendation and a 4,000p price target for Unilever, implying potential downside from the current price of 4,637p, investors should critically evaluate their exposure to ULVR.
• Monitor The Magnum Ice Cream Company's performance post-spin-off, specifically its ability to improve margins and volume growth relative to peers, and track developments concerning the Ben & Jerry's brand, including potential impacts of its activism or a sale.
• Consider the possibility that the anticipated benefits of the ice cream division's separation are already priced into Unilever's stock, and weigh the highlighted structural, cyclical, and execution risks before making new investment decisions.