Analysis Henkel Sept 28, 2018

Henkel is a mixture of a consumer goods company similar to P&G and an industrial supplier with  total revenues above 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 most popular Henkel share is the preferred share which is more liquid 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. Hence for a private investor the commen share is the better choice. 

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

Chances & Risks

Henkel is compared to similar european companies 2.5 fold the book value, PE 15 (commen share), neither cheap nor expensive. 

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 will grow organic in the next couple of years with 3 - 4% plus inflation.  It gets stability as a marketing company of FMCG (as P&G) but it is not as stable as pure FMCG companies. 

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. There is the industrial business, example selling adhesives to the automotive industry which gives big volumes but low margins and the consumer business that provides very comfortable margins but low volumes. The contractor 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 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.     

The geographical mix 1/3 revenues from Western Europe, about 1/5 from North America the remainder from growth regions will provide margin (Europe) and growth (ROW) is well balanced. 

This is not a recommendation or proposal to do anything. 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. 

Some references

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

 

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