According to a research note from UBS Investment Research, despite expected short-term gains Unilever faces a number of significant challenges that it must overcome on the road to recovery.

According to UBS analyst Alan Erskine, Unilever's second quarter sales are likely to grow 3.3% to EUR10.25bn (US$12.88bn). "In Q2 we anticipate organic sales growth of 3.6% (3.1% volume/mix), driven largely by another strong performance in the emerging markets," the note stated.

Shares of the Netherlands-based company have dropped by 9% in value since it reported weak first quarter results in May. The share has "fallen to a level where we consider them to be slightly oversold," Erskine observed.

However, the research note continued: "we remain sceptical of any meaningful recovery".

Erskine said that Unilever's poor performance is the result of corporate culture issues. "We believe the causes of Unilever's marketplace underperformance have a lot to do with corporate culture and may not be easily addressed," he commented.

Moreover, UBS warned of increasing competition from Procter & Gamble.

UBS maintained a "neutral" rating and a price target of US$24.03.

Unilever is scheduled to report second-quarter 2006 results on 3 August.