Beiersdorf is a high-quality business - it is a global HPC company with strong brands (Eucerin & Nivea moisturizing cream, skin care, shampoo) and a significant EM presence. It is overcapitalized and trading at a 1-3x EBITDA multiple discount to comps on temporarily depressed margins. The discount stems from a recent earnings guide down related to near-term increases in marketing spending. This is in response to moderate (and reversible) market share losses in 2010.
Bob MacDonald, CEO of PG, has publicly stated as recently as last fall that PG would be interested in Beirsdorf. This was before the 4Q fall in the stock price. HPC acquisitions can have significant synergies (could be up to 10% of sales for BEI / PG, a doubling of BEI EBIT margins). A near term sale is unlikely, however, because BEI's controlling shareholder (Maxingvest / Herz family) appears unwilling to sell (they are instead investing in new product growth). PG has been a rumored suitor as far back as 2003, and their interest puts a floor on the risk to the stock. If BEI's growth strategy misfires, there is likely to be increasing support within the family to sell. Downside protection also comes from BEI's net cash position which is 22% of their market cap. BEI could do something shareholder friendly with the cash, but it more likely to acquire in the near term. Even if they paid a full multiple, an acquisition would still be accretive.
BEI's sales mix has a solid component in emerging market regions (45% between Lat Am, Asia, and Eastern Europe). It also has an underperforming adhesives division (Tesa), which is 20% of sales and could be sold. This division is significantly below company average margins. BEI recently sold a small, non-core skin care brand (Juvena) and appears to be more open to divesting underperforming brands. OR FP, EL, and Henkel trade at ~11x-13x fwd EBITDA on significantly higher margin structures (at 10 year peaks). BEI's HSD% growth in emerging market regions should allow organic growth to continue and for it to lever its near-term elevation in SG&A spend by 2012. Street estimates (below) are now conservative after coming down at the Dec 15th guidance event. A halfway retracement of EBIT margins back to 2008 levels would put BEI at less than 9x FY12 EBITDA on beatable #'s. A return to a 12x multiple would offer a 35% return to Euro 56 per share, with free options that the Herz family changes its attitude towards PG's overtures or does something accretive with its excess cash.
Beiersdorf
Price
€41.54
Shrs Out Ex Treas
227
Mkt Cap
€9,421
Add: Debt
€169
Add: Minority Int
€10
Add: Pension Underfunding
€81
Less: Cash
€2,094
E 955M of cash is < 2 yr duration gov and corp bonds.
EV
€7,587
Note: Net Cash
€1,925
FY 12/2005
FY 12/2006
FY 12/2007
FY 12/2008
FY 12/2009
FY 12/2010
FY 12/2011
FY 12/2012
Revs
€4,776
€5,120
€5,507
€5,971
€5,748
€6,146
€6,195
€6,436
y/y growth
7.2%
7.6%
8.4%
-3.7%
6.9%
0.8%
3.9%
Gross Profit
€3,118
€3,384
€3,677
€3,992
€3,866
% Sales
65.3%
66.1%
66.8%
66.9%
67.3%
Core EBIT after 1x
€531
€597
€684
€696
€587
€638
€594
€692
% Sales
11.1%
11.7%
12.4%
11.7%
10.2%
10.4%
9.6%
10.8%
Core EBITDA after 1x
€693
€780
€806
€810
€722
€804
€760
€856
EBITDA - CapEx
€565
€666
€696
€649
€597
€642
€585
€666
FCF (NI + D&A - CapEx)
€363
€733
€449
€515
€384
€385
€362
€422
CapEx
-€128
-€114
-€110
-€161
-€125
-€162
-€175
-€190
Net Income
€329
€664
€437
€562
€374
€412
€397
€461
EPS
€1.45
€2.93
€2.15
€2.46
€1.65
€1.81
€1.77
€2.05
Multiples
EV / Revs
1.3x
1.2x
1.2x
1.2x
EV / EBIT
12.9x
11.9x
12.8x
11.0x
EV / EBITDA
10.5x
9.4x
10.0x
8.9x
EV / EBITDA - CapEx
12.7x
11.8x
13.0x
11.4x
Catalyst
Accretive acquisition (or share repurchase) with substantial net cash position. Growth & marketing investments allow a resumption to DD% EBIT growth rates in 2012 (after a significant lowering of 2011 expectations on Dec 15th). PG continues its public expressions of interest in BEI or controlling family shareholder becomes more open to a sale of the company.
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