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Analysis Henkel update August 12th, 2021 

 

Preferred Share                  Commen Share

                                  ISIN: DE0006048432,           ISIN DE0006048408

                                 Symbol   HEN3.ETR                       HEN. ETR   

Henkel is a mixture of a consumer goods company similar to P&G and an industrial supplier as Sika with  total revenues of about 20 bn €/yr.. Its main businesses are adhesives, about 1/2 of the revenues, detergent & cleaners about 30% of the revenues and cosmetics about 20% of the revenues. The consumer cosmetic seems to me the weakest business of Henkel. 

The most popular Henkel share is the preferred share which is more liquid (6 -fold turnover) and hence bought by big investors. The commen share is less popular and significant less expensive. The reason is that Henkel is still controlled by the Henkel family and thus the voting right is of limited value. Hence for a private investor the commen share is the better choice. 

Henkel is a mixture of a very stable FMCG (fast moving consumer goods) company and a cyclical industrial supplier (parts of adhesives). Economic crises as that created by the politicians with the covid panic hit the adhesive business but not the detergent business.  

A motivation to buy Henkel is the steady business. It is a share for retirement. 

This is not a recommendation or proposal to do anything. The data written in this article is not guarranteed. It is my private personal opinion.  I`m not independing as I own a position of Henkel shares and I was working for Henkel for a couple of years several years ago. 

Chances & Risks

In H1 the company had an organic growth of 11.3%. The Adhesive business participated over average with 20.2% while the detergent business far less with 3.9%. In the covid panic it was the opposite. It is a mixture of a stable FMCG business and a volatile industry business. 

Growth is achieved in the new markets in developing countries while the saturated markets in Western Europe are more profitable. Henkel as a traditional German/European company faces plenty of challenges in North America the home market of competitors as P&G.  



Actually the raw and packaging material costs are rising " "Bisher ließen sich die Engpässe im Verpackungsbereich durch umsichtige Vorplanung und aktives Lieferanten-Management weitestgehend abfedern." Höhere Kosten für Verpackungsmaterialien seien jedoch kurz- bis mittelfristig nicht zu umgehen. It seems that Henkel can pass most of the the higher costs of the starting inflation to its customers.   

Henkel is with a PE 15 based on 2019 profits, 75 € share price (commen share) neither cheap nor expensive. 

The EBIT margin was quite high (17.6% 2018) and fell to 14% (2019). From my point of view the lemon was pressed the last couple of years. It would be better to increase the marketing expenses and sales support by application engineers (adhesives) to increase the market share and revenues and target an EBIT margin of 15% which will most probably become achieved in 2021.  

Henkel is a company to stay in for retirement. The strong brands and cash flow gives the business a lot of stability. I assume that Henkel is stagnating for some time untill it finds back on a growth path with perhaps 2 - 4%.  It gets stability as a marketing company of FMCG (as P&G) but it is not as stable as pure FMCG companies. Due to its very low net debt Henkel is looking for M&A opportunities. 

The main risk is that the management tends to visions, perceived facts and numbers. This could lead to situations that the company will make false decisions and stick longer to it than it should.

Some observations 



The adhesive business is the biggest and most profitable business of Henkel. The adhesive business provides wide moats as adhesives are usually make up an ignorable share of the total costs of the customers products, on the other hand are critical for the functioning of products. Hence many adhesive applications are tested intensivly quite often certified. It is not comparable to commodities. Henkel has a strong position. The automotive and electronics industry provide big volumes but low margins and the consumer business provides very comfortable margins but has low volumes. The construction business is compared to Sika less developed as Henkel is organized more central than Sika and hence acts less agile in this field.

 

The FMCG detergents, cleaners and cosmetics are marketing driven products. Margins are quite well in Western Europe and North America. Henkel has very strong brands as the Persil/Pril/General...Pattex business in Europe. 



The Henkel cosmetic business fell behind the other businesses in the last couple of years. Growth and profitability are below that of the other two business units. 

The organic growth is high in Middle East, Africa, South America but negative in Western Europe & North America. In the developed countries usually the trade is strong and non-branded products are available in good quality and low costs. In these markets brands find a more difficult environment. It seems obvious that Henkel did already reduce its dependence from the German and Western European economy. That is a good thing as Western European economies will most probably will see a long recession due to green religion and destructive politics. 

The management style is rough and challenging. The business targets are sometimes ambitious. The management tends to perceived facts and numbers. It can be observed that if Henkel did not perform in a period acc. to expectations there are plenty of "adjusted numbers" in the reports. 

 

Some Data

Share Information


The company is controlled by the Henkel family via the legal instrument of a KgaA. It owns 61.5% of the commen shares. The free float of commen shares is 100.796.860 only. Institutional investors prefer the preferred share as it is more liquid on the stock exchange. As it is significant more expensive private investors prefer to buy the commen share.  7%! of the Henkel commen shares are owned by owners with domizile in Germany (excl. Henkel family)(31.12.2020).  

News

Oct. 25 2019 Due to the lower results in the last quarters the CEO Van Bylen had to resign and is replaced by Karsten Knobel CFO. (9)

Consumer Good Companies

In boom times consumer good companies increase their revenues as more poeple buy branded products but earn less when raw materials, labour and nearly all costs are rising. In recessions it is the other way. Revenues are decreasing slightly but profits are increasing significantly. In the business figures these effects are straightened. For ex. when profits are not satisfying depreciations are done at a minimum. When profits are rising manager remember plants, molds..and other stuff to write it off. 

Henkel as mixture of a consumer goods company and the more cyclical industrial business of the adhesive business. Hence it is a very stable company.   

 

*HGB Handelsgesetzbuch....Das ist das traditionelle deutsche System. 


Comment Aug. 20, 2021 about Henkel

Henkel is a mixture of a FMCG company like P&G and an adhesive business that is mostly a B - B business. 


Many years ago I was working in Henkel as a manager. Later I spent some time with a competitor. I have shares of Henkel since. Thus I`m not independent. My comment is not a recommendation or proposal to do anything. The data written in this article is not guarranteed. It is my private personal opinion.

The main reason that the business results were disappointing in 18, 2019 - 2020 was that the screw was overturned before. Henkel emphasized too much on EBIT margin before. Pricing was very aggressive, the spending in the development of the brands was not adequate. In consequence after some years the revenues stagnated net profit shrank. The new CEO seem to have turned the company in a healthier direction. 

Outlook

In the FMCG sales volume and margins will stagnate due to a fierce competition with retail brands and a strong trade in Europe, North America?. Henkel`s future are the markets in Eastern Europe, Middle East and other developing countries. There is plenty of growth potential. 

The adhesive division is very diverse...There is a consumer good business that is strong, there are specialities with high margins and there is a commodity business with high volumes and low margins (automotive). This business will develop acc. to the overall economy slightly better. Henkel is hit indirectly by the green religion, ESG targets and the covid panic as other companies as well. The future is to get as much business as possible out of Western Europe/North America with its strange destructive ideology into growing markets. 

I assume that Henkel is not bad for a long term investor with an average growth of perhaps 4% in the future.




Some references

(10) 2020/03/05 https://www.henkel.de/resource/blob/1040424/a5e070042ddc1dd45e16865b1bc5f9c7/data/2019-geschaeftsbericht.pdf

(9) 2019/10/25 https://www.handelsblatt.com/unternehmen/management/chefwechsel-henkel-chef-van-bylen-geht-finanzvorstand-knobel-wird-nachfolger/25152838.html?j=491159&sfmc_sub=276757733&l=266_HTML&u=13392041&mid=7322111&jb=782&ticket=ST-50618224-hjHmIFGAA1ted7JFaCSi-ap4

(8) 2019/08/13 https://www.henkel.de/resource/blob/973254/79a0199cb47bca58fb17cd61883bf62a/data/2019-q2-bericht.pdf

(7) 2019/05/16 https://seekingalpha.com/article/4264689-henkel-henky-investor-presentation-slideshow?dr=1

(6) 2019/05/07 https://www.henkel.de/resource/blob/937638/c9926c11848a45c496fefa3ad4883e10/data/2019-q1-mitteilung.pdf

(5)2019/02/21 https://www.henkel.de/resource/blob/912086/0f8b84ab9a28efa936e0fdf417146da3/2018-geschaeftsbericht-data.pdf

(4) 2019/01/21 https://www.xtb.com/de/Marktanalysen/Trading-News/de30-henkel-fallt-nach-kurzung-der-ergebnisprognose

(3) 2018/12/30 https://www.finanztrends.info/henkel-aktie-erwartungen-verfehlt/

(1) 2018/11/15 https://www.henkel.de/blob/891798/8f457ea7c66ef3a46321b792bd5ece21/data/2018-q3-mitteilung.pdf

(2) https://ch.marketscreener.com/HENKEL-436185/unternehmen/

https://seekingalpha.com/article/4208689-henkel-value-underfollowed-european-giant?app=1&dr=1

 

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