Henkel: Still A Buy

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Henkel Announces Results For 2007

Patrik Stollarz

My past article astir Henkel AG (OTCPK:HENKY) was published successful September 2022 and while nan banal is now trading for €64 it was trading for €61 backmost then. An summation of 5% is surely not an awesome performance, but it outperformed nan S&P 500 (SPY) which declined somewhat successful nan aforesaid timeframe.

And to beryllium honest, Henkel did precisely what I expected this banal to do. Withstand imaginable downturns successful nan coming quarters and truthful outperform galore different stocks and sectors which are astatine a precocious consequence of declining owed to a imaginable recession and steep carnivore market. In nan pursuing article I will reiterate my bullish thesis and explicate again why I deliberation Henkel is simply a coagulated prime successful nan existent market.

Third Quarter Results

Like astir different European companies, Henkel is reporting only rudimentary third-quarter results (and nary existent income connection aliases equilibrium sheet). But erstwhile looking astatine nan numbers Henkel reported, we spot beardown maturation rates. Sales successful nan 3rd 4th were €5,976 cardinal and compared to nan aforesaid 4th past twelvemonth this was an summation of 17.3% year-over-year. And while rate effects pushed sales, integrated maturation was 11.3% pinch measurement declining 3.4% but higher prices contributing 14.7% to a beardown double-digit integrated growth. When looking astatine nan first 9 months of fiscal 2022, generated income were €16,889 cardinal resulting successful an summation of 12.5% year-over-year. Organic maturation was 9.7% successful nan first 9 months pinch measurement declining 1.9% while value accrued 11.6%.

Henkel could study double-digit integrated income growth

Henkel Q3/22 Presentation

And erstwhile looking astatine nan different segments, each 3 contributed to growth. While Beauty Care could study only 0.9% year-over-year integrated maturation (and income of €1,013 million), Laundry & Home Care accrued integrated income by 7.3% YoY to €1,902 million. And Adhesive Technologies, which was responsible for much than 50% of full income could study integrated maturation of 16.8% year-over-year and generated €2,995 cardinal successful sales.

Henkel is reporting beardown integrated income maturation successful each regions

Henkel Q3/22 Presentation

When looking astatine nan different regions, each six contributed to integrated growth. And while mature markets grew only 5.6% year-over-year, emerging markets could study 18.6% maturation (with Latin America increasing 22.5% and Eastern Europe increasing 25.2%).

And finally, nan institution besides raised its guidance for fiscal 2022 and is now expecting integrated income to turn betwixt 7% and 8% (compared to 5.5% to 7.5% maturation successful nan erstwhile guidance). And though Henkel is still expecting net per stock to decline, adjusted EPS is expected to beryllium 25% to 15% little (compared to -35% to -15% successful its erstwhile guidance).

 Outlook 2022

Henkel Q3/22 Presentation

Long-term Growth Strategy

Last September, Henkel held its Capital Markets Day and presented its strategy of purposeful maturation and its measurement to triumph nan 2020s. And erstwhile looking astatine nan company’s capacity successful nan past fewer years, a strategy for accordant maturation seems necessary. Since 2017, yearly income were almost each twelvemonth astir €20 cardinal (and fluctuating successful a very constrictive range) – only 2020 was an objection pinch €19.3 cardinal successful sales. And until 2018, Henkel improved its adjusted EBIT separator to 17.6% but successful nan pursuing years margins declined again and are expected to beryllium only somewhat supra 10% successful fiscal 2022.

In nan past fewer quarters, we yet saw beardown hints for betterment and Henkel increasing pinch a beardown gait again (and outperforming inflation). Bottom statement is still struggling, but successful fiscal 2022 Henkel will study income noticeable supra €20 cardinal for nan first clip since it started to struggle successful 2017. And not only tin we spot signs of growth, but nan institution besides has a clear ambition for nan coming years to turn its 2 business segments (as nan institution is presently restructuring and nan erstwhile 3 business segments will go 2 successful nan future).

Adhesive Technologies

Of nan 2 awesome segments successful which Henkel will study successful nan future, adhesive technologies performed pinch much consistency successful nan past fewer years. However, we tin telephone nan capacity coagulated astatine best. Between 2012 and 2021, gross for nan conception accrued from €8.3 cardinal to €9.6 cardinal resulting successful a CAGR of only 1.63%. Additionally, nan conception could amended nan adjusted EBIT separator from 15.1% successful 2012 to 16.2% successful 2021 (in nan meantime it was arsenic precocious arsenic 18.7% successful 2018).

Well-balanced portfolio for Henkel's adhesive exertion business

Henkel Capital Market Day Presentation

And while nan capacity successful nan past was not impressive, I tin image nan conception increasing betwixt 3% and 5% successful nan years to travel – according to nan company’s semipermanent targets. Adhesive Technologies has a starring position crossed its full portfolio and is either #1 aliases #2 worldwide and pinch astir €300 cardinal spent connected investigation and improvement and 2,500 engineers and researchers nan institution should beryllium capable to thrust invention resulting successful growth.

Consumer Brands

The 2nd conception – speech from adhesive technologies – will beryllium user brands, nan operation of Beauty Care and Laundry & Home Care. And nan caller conception will attraction connected becoming amended and becoming bigger. Become bigger intends integrated maturation and becoming amended intends improving margins and being much efficient. And successful nan past fewer years, these 2 erstwhile segments intelligibly struggled – particularly Beauty Care saw declining income and a declining margin.

 Consumer business

Henkel Capital Market Day Presentation

Henkel is expecting for nan merger of nan 2 segments to person affirmative effects. Instead of 2 activity teams and 2 abstracted proviso chains and income teams, Henkel is now expecting a leaner structure, which will let nan business to attraction and go faster. And this should importantly amended nan costs structure, agility, and resilience of nan segment. Henkel is expecting nett savings of astir €250 cardinal from fiscal 2024 going guardant and nan semipermanent extremity is to scope astir €500 cardinal successful gross savings annually and being capable to reinvest these savings successful nan business. The institution is besides looking astatine its marque portfolio and respective brands are nether reappraisal correct now and mightiness beryllium discontinued aliases divested (these brands are responsible for up to €1 cardinal successful sales).

Henkel is trying to amended its Consumer Business successful 2 phases

Henkel Capital Market Day Presentation

Overall, Henkel is expecting apical statement to turn betwixt 3% and 4% for nan business and though it struggled recently, this seems imaginable (look astatine Laundry and Home Care maturation successful nan years pursuing 2012).

Summing Up

Although Henkel was intelligibly struggling successful nan past fewer years, I spot nan imaginable for low-to-mid azygous digit apical statement maturation successful nan years to come. And starting from an operating separator successful nan debased double digits, Henkel should besides beryllium capable to amended its margins.

Intrinsic Value Calculation

When looking astatine elemental valuation metrics – successful this lawsuit nan price-earnings ratio – Henkel seems to beryllium trading for reasonable valuation multiples. When taking nan net per stock for fiscal 2021 (€4.56), we get a price-earnings ratio of 14. Of course, net per stock for fiscal 2022 are expected to beryllium little and erstwhile utilizing nan company’s ain guidance, we get a P/E ratio of 15.6 to 18.7. And while this is simply a higher valuation, it still seems acceptable.

To get a amended picture, we will beryllium utilizing a discount rate travel calculation to find an intrinsic worth for nan stock. As basis, we often usage nan free rate travel of nan past 4 quarters, but successful lawsuit of Henkel, free rate travel was highly debased successful nan caller past and astir apt not typical of Henkel’s profitability and rate travel procreation abilities. When looking astatine nan past fewer years, a free rate travel location betwixt €1,500 and €2,000 should beryllium realistic for Henkel and we will cipher pinch 2 different scenarios (in fiscal 2020, free rate travel was moreover €2,340 million). And we should not disregard that Henkel is having problem to make free rate travel correct now, but we should besides not cipher pinch these debased numbers arsenic they are not typical of nan free rate travel Henkel tin generate.

Henkel's mid-to semipermanent ambitions

Henkel Q3/22 Presentation

For maturation I americium astir apt a spot much cautious than Henkel. While guidance is expecting mid-to-high azygous digit maturation for nan bottommost line, I will cipher pinch 5% and 6% maturation from now till perpetuity.

5% maturation till perpetuity

6% maturation till perpetuity

Free rate flow: €1,500



Free rate flow: €2,000



And immoderate nan existent intrinsic worth for Henkel is, I deliberation we tin reason that nan banal is undervalued astatine this point.

Why Henkel?

You mightiness cognize that I americium alternatively bearish astir nan banal marketplace – an sentiment I expressed successful respective articles (see here and here for example). And arsenic I see galore stocks not arsenic a awesome finance correct now, 1 mightiness inquire why I americium seeing Henkel arsenic a bully investment. To reply this question, we tin look astatine respective pieces of information.

First, Henkel is simply a German company, and I americium not arsenic bearish for German stocks arsenic I americium for U.S. stocks. Without overmuch doubt, Germany will beryllium deed by a world recession arsenic good arsenic different countries astir nan world, but successful January 2023, Germany was trading for a CAPE ratio of 13.4 while nan United States were trading for a CAPE ratio of 25.6.

And it is not only nan German banal marketplace but besides Henkel trading for a overmuch reasonable valuation multiples than astir of its peers.

ChartData by YCharts

Second, Henkel is simply a coagulated business and has not only an economical moat astir its business but tin beryllium seen arsenic alternatively recession resilient arsenic it is trading galore essential, mundane products. When talking astir nan economical moat nan business has, we tin mention nan respective beardown marque names of Henkel – for illustration Persil generating €1.4 cardinal successful yearly income and Schwarzkopf generating €1.8 cardinal successful yearly sales.

Henkel has respective powerful marque names successful its portfolio

Henkel Capital Markets Day Presentation

But it’s not only nan marque names, which are for illustration a short trim for customers: These marque names usually trim hunt costs for nan customers arsenic they convey spot and galore customers are convinced that Henkel’s products are superior to those of cheaper competitors.

The economical moat is besides stemming from switching costs, which originate particularly for nan Adhesive Technology segment. Adhesives, which are utilized successful nan conveyance manufacture and aerospace manufacture (among others) are alternatively sticky products and make precocious switching costs for immoderate business purchasing these products from Henkel. Adhesive play an highly important domiciled for nan information of a conveyance aliases craft but dress up only a fraction of nan wide costs. And nan consequence appraisal betwixt redeeming a fewer dollars but risking nan information of an craft will ever beryllium successful favour of high-quality products (like Henkel is selling).

When looking astatine nan numbers usually indicating a wide economical moat, nan image is not cleanable arsenic Henkel saw a declining operating separator successful nan past fewer years and return connected invested superior was “only” 9.75% successful nan past 5 years (it was 11.26% successful nan past decade). But a RoIC supra 10% tin beryllium seen arsenic a hint for an economical moat.

And third, I spot nan banal astatine a coagulated support level and nan downside consequence is constricted successful my sentiment arsenic location is simply a beardown support level betwixt €55 and €60 and I don’t deliberation Henkel will driblet below. During nan past 12 months, nan banal was trading successful a constrictive scope betwixt €56 and €65.


I still deliberation Henkel banal is simply a bargain pinch constricted downside consequence but upside imaginable complete nan coming years. For astir €65 we tin bargain a high-quality business that is trading beneath its intrinsic worth and should execute rather good successful a imaginable recession.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

Daniel Schönberger floor plan picture

Part-time investor and contributor for Seeking Alpha since 2016. My study is focused connected high-quality companies, that tin outperform nan marketplace complete nan long-run owed to a competitory advantage (economic moat) and precocious levels of defensibility. Focused connected European and North American companies, but without constraints regarding marketplace capitalization (from ample headdress to mini headdress companies). My world inheritance is successful sociology and I clasp a Master’s Degree successful Sociology (with main accent connected organizational and economical sociology) and a Bachelor’s Degree successful Sociology and History.I besides constitute astir investing, system and akin topics connected Medium:

Disclosure: I/we person a beneficial agelong position successful nan shares of HENKY either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga

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