Analysis Henkel update Aug. 10th, 2023
Preferred Share Commen Share
ISIN: DE0006048432, ISIN DE0006048408
Symbol HEN3.ETR HEN. ETR
Symbol ADR HENOY HENKY
Henkel is a mixture of a consumer goods company similar to P&G and an industrial supplier as Sika with total revenues of > 20 bn €/yr.. Its main businesses are adhesives, > about 1/2 of the revenues, detergent & cleaners & consumer cosmetic the remainder.
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 with a share of 61.8% 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). The strong brands and cash flow gives the business a lot of stability. 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
Due to the crazy politics in large parts of the world the world economy is stagnating and probably Henkel will stagnate as well.
The 2023 H1 organic growth of 4.9% is generated by 12.1% price increases and -7.2 volume decreases. That means the company is shrinking if the inflation is taken out.
The EBIT margin of Asia is 16.2%, Europe 7.6% while only 2% in North America. That means Henkel is loosing money in North America. Fixing this issue would bring Henkel to normal profitability.
The challenge are risen raw material and energy prices.
Henkel has its own coal power plant in its largest production site in Duesseldorf supplying the site with electricity, steam and heat. Thus it is hit less directly by the energy crises in Europe than other manufacturers of detergents & adhesives. But it faces indeed higher costs for chemicals and packaging materials in the short term.
Western Europe is by far the most profitable region for Henkel. It is Henekls cash cow. The challenge for the future is that if Germany and other western countries will stay with its green religion and dogma as "climate change" it will become poor very quickly and poeple will switch from expensive branded products to retailer brands.
The Russian and Belarus market was given up in Q2/22. Ukraine is disturbed. Henkel lost perhaps revenues of 1 bn € from it.
Henkel is with an estimated EPS of 2.8 € 2023, 63 € share price (commen share) August 10th 2023, a P/E of 22 neither cheap nor expensive.
The EBIT margin was quite high (17.6% 2018) and fell to 14% (2019), 14.4% 2021, 8.1% 2022. From my point of view the lemon was pressed the last couple of years. It seems unlikely that it will come back to 18% in the foreseeable future.
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.
A 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.
Another risk that was not present as I was working for this company are green religious and ideologic targets (ESG) that are taken serious now. For ex. the company plans to increase the female share of the management from 38% 2022 to parity in 2025 (12). This means driving out successful male manager from their position due to this ideology. This means to demotivate whole management teams as many have no chance as they have the wrong sex. A lot of damage is caused in the company.
The revenues are split well around the globe.
But Henkel still earns most of its EBIT in Western Europe. EBIT margins below 5% indicate that Henkel does not earn money in large parts of the world.
The biggest challenge and opportunity for Henkel is to make these regions profitable.
Business Units
The cosmetic division was the least performing division for years. Now it is merged with the Laundry & Cleaning business. This is not bad as it is the same distribution channels, similar production technologies. But I doubt that it will improve the business. The challenges remain the same. From my point of view it might have been better to sell this business to a competitor.
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.
Some Data
Share Information
Henkel bought back some share that are now treasury shares.
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)(31.11.2021).
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)
Some references
(11) 2022/01/28 https://de.fashionnetwork.com/news/Henkel-fuhrt-konsumgutergeschaft-zusammen,1373040.html
(10) 2020/03/05 https://www.henkel.de/resource/blob/1040424/a5e070042ddc1dd45e16865b1bc5f9c7/data/2019-geschaeftsbericht.pdf
(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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