Company Reports

We increase our fair value estimate for narrow-moat Beiersdorf by 6% to EUR 106 per share after reflecting in our forecast the strong first-quarter sales growth as well as a small revision to our midterm estimates. The consumer segment continued its positive momentum with organic sales growth of 10%, primarily driven by Nivea and the dermatological brands. La Prairie also returned to modest growth of 1% in the first quarter after a very weak performance last year and measures taken to normalize stock levels at the end of last year. Given these results, management upgraded its guidance for the consumer business to 6%-8% organic sales growth from midsingle digits previously. We believe this is realistic in light of the strong start to the year, even when assuming a substantial slowdown in sales growth in the coming quarters as price contribution to growth dwindles and volume growth normalizes. The Tesa business struggled in the first quarter, with like-for-like sales down 5.4%. Despite this, management confirmed its sales growth guidance of 2%-5% for Tesa for the full year. We believe this will be difficult to achieve as it would imply a very strong recovery in some ailing end markets such as electronics in Asia and North America. Even considering the bump in our fair value estimate, the shares appear overvalued, trading at a premium of around 20%.

Beiersdorf’s strategy focuses on three key growth drivers: skincare prioritization, white-space penetration, and an acceleration of digital transformation. CEO Vincent Warnery, appointed in 2021, has emphasized his continued support of this, having been part of Beiersdorf’s executive board at the time the strategy was introduced in 2019. In the past few years, Beiersdorf has put the strategy into action by focusing its innovation program on the skincare category, with an emphasis on facial care as the fastest-growing subcategory. We believe this strategy is wise, given that the facial care segment features faster growth and higher margins than the body care segment, in which Beiersdorf and its flagship brand Nivea have been historically overindexed.

Narrow-moat Beiersdorf delivered 2023 full-year net income of EUR 749 million, below the FactSet consensus of EUR 896 million and our forecast of EUR 876 million. The growth momentum was maintained, as the company delivered 10.8% organic sales growth, with a balanced contribution from price and volume for the consumer brands. The gap to the market’s profit expectation was driven by a lower-than-expected EBIT margin and a higher-than-expected effective tax rate. The 13.4% EBIT margin represents a 20-basis-point year-over-year improvement, which is modest in the context of a 100-basis-point improvement in gross margin to 57.3%. The investments in advertising and promotions and research and development were increased ahead of sales driven by higher investment in digital media and the skincare category. For 2024, management expects mid-single-digit growth and an EBIT margin “slightly” ahead of last year. The share price was down around 4% in early trading, likely due to the profit miss. We don’t expect to materially change our EUR 100 fair value estimate after incorporating these results and the 2024 guidance, and we continue to view shares as expensive.

Narrow-moat Beiersdorf largely maintained its growth momentum in third-quarter 2023, delivering organic sales growth of 11.2% for the first nine months, compared with 12.3% in the first half. The performance was driven by the consumer segment, with year-to-date organic sales growth of 13.6%, while the Tesa segment's performance continued to be muted, posting year-to-date organic sales growth of 1.3%. In light of strong growth momentum, its full-year guidance for the consumer segment was increased once again. Management now expects low-double-digit organic sales growth for the segment, compared with a high-single-digit to low-double-digit range previously. Our forecast already called for 13% organic sales growth for the consumer segment in 2023, so we make no changes to our model and confirm our EUR 100 fair value estimate. We believe shares are expensive at current levels.

Narrow-moat Beiersdorf delivered a strong set of first-half 2023 results, ahead of FactSet consensus and our expectations. Growth momentum in the first quarter was maintained (12.3% organic sales growth for the first half versus 12.2% for the first quarter), with an excellent performance from the consumer segment (14.9% organic sales growth for the first half). The consumer EBIT margin also came in almost 200 basis points higher at 17%. This was partially driven by gross margin improvement (50 basis points). The performance of the Tesa business segment (17% of revenue) was more muted, delivering organic sales growth of 1.2% and a 70-basis-point decline in the EBIT margin to 18.4%.

Narrow-moat Beiersdorf reported solid first-quarter sales growth of 12%, ahead of the 8% FactSet consensus estimate. Within this, the brand Nivea and the dermatological segment provided standout performances, posting organic sales growth of 18% and 27%, respectively. Management increased group top-line guidance slightly to mid- to high-single-digit organic sales growth, from mid-single-digit organic sales growth previously, while EBIT margin expectations are unchanged (slightly above the previous year’s level). We don’t expect to make material changes to our full-year forecast at this time (calling for top-line growth of 4.5% and 50 basis points EBIT margin accretion compared with last year). A scenario of slightly higher top-line growth and a slightly lower margin would be broadly neutral to our valuation. We regard shares as expensive at current levels, trading in 2-star territory.

We are increasing our fair value estimate for narrow-moat Beiersdorf to EUR 93 from EUR 90 to account for the time value of money. Full-year 2022 results were in line with our expectations, with group revenue of EUR 8.8 billion and an operating margin of 12.4% (compared with EUR 8.8 billion and 12.2% in our forecast, respectively). In light of this, our long-term forecast remains largely unchanged. We expect a 4% average top-line growth through 2027, and a steady-state operating margin of 16%—assuming gradual margin recovery driven by milder cost inflation and continued portfolio transition toward more premium skincare categories. Shares strike us as overvalued at current levels, as Beiersdorf usually trades at multiples well above its peers due to its healthy balance sheet, with a net cash and securities position of EUR 4.5 billion at the end of the year.

Narrow-moat Beiersdorf’s third-quarter trading update offered little surprise, with the group reporting organic sales growth of 11% in the quarter compared with the previous year. Following another quarter of strong topline delivery, management increased the full-year guidance for organic sales growth for the consumer segment to a range of 9% to 10% from a high mid-single-digit previously. We already forecast 10% organic sales growth for the segment in 2022, and therefore we make no change to our EUR 90 fair value estimate. Despite a marginal share price correction on the day, shares still strike us as expensive and we recommend investors wait for a better entry point.

With gradually accelerating pricing and benefiting from a currency windfall, we now expect a much stronger top-line delivery for narrow-moat Beiersdorf in 2022. The company posted a strong 15.5% revenue growth for the first half of the year, coupled with a 100-basis-point improvement in operating margin as a result of cost leverage. Following the announcement, we increase our organic revenue growth forecast for the consumer segment to 10% from 6% earlier, while reflecting in our forecast the currency benefit. This leads us to raise our fair value estimate by 6% to EUR 90. Even after our bump in our fair value estimate, we still believe the market is overvaluing Beiersdorf, whose shares typically trade at a significant premium to the peer group due to the company’s very strong balance sheet.

The global beauty market has realized 4%-5% annual growth over the past decade (excluding the pandemic), and we expect a modest acceleration to 5% in the next 10 years as China becomes a bigger portion of the mix (from 19% of the global market in 2021 to 29% in 2031 by our estimate) and as makeup continues to recover post-pandemic. China should continue to be a driving force of growth for years to come, as consumers in this region are just beginning to expand into makeup, fragrance, and haircare, although the skincare market is more developed. Further, as other emerging markets (Brazil, India, Mexico) experience rising incomes, this should boost their per capita consumption of beauty, providing additional growth potential beyond China.

Following a transfer of coverage, we lower our fair value estimate for narrow-moat Beiersdorf to EUR 85 from EUR 94. We believe the company’s C.A.R.E+ strategy is delivering promising results and we forecast above-industry-average sales growth in the midterm, however, we are less impressed with management’s capital allocation decisions, especially in regards to shareholder distribution.

Beiersdorf reported respectable fourth-quarter and full-year 2021 results, with sales bang in line with our estimates, but both gross and EBIT margins slightly better than we had expected. We are making very minor changes to our forecasts, lowering our earnings forecast for next year slightly, on the expectation of continued cost inflation, but we are retaining our EUR 94 fair value estimate. Although Beiersdorf looks close to being fairly valued, it is quite rare that the stock trades below our fair value estimate, as it usually trades at multiples well above its peers due to its healthy balance sheet.

Beiersdorf reported in-line third-quarter sales, with sales growth in the consumer and tesa divisions moderating sequentially, as expected. We have tweaked our near-term assumptions but make no change to our EUR 94 fair value estimate or narrow moat rating. With the stock off its recent highs, we now consider Beiersdorf to be fairly valued.

We think Beiersdorf can achieve above-industry-average sales growth in the medium term as a result of whitespace geographic opportunities and the potential to take share in adjacent categories, particularly for Nivea. It lags peers on margins, however, and we think a renewed focus on efficiencies will be needed to close the gap.

Narrow-moat Beiersdorf posted very strong first-half results, with revenue growth and margins ahead of our forecasts. We now expect sales growth momentum to continue in the second half of the year, but raw material inflation is likely to begin to bite soon. We are raising our fair value estimate to EUR 94 from EUR 89 to reflect the higher revenue assumptions for this year (EUR 1 of the increase) and to account for the time value of money since our last update (EUR 4). The shares, which often trade at a significant premium to the peer group due to the company’s very strong balance sheet and whitespace opportunities, appear slightly overvalued at current levels.

We think Beiersdorf can achieve above-industry-average sales growth in the medium term as a result of whitespace geographic opportunities and the potential to take share in adjacent categories, particularly for Nivea. It lags peers on margins, however, and we think a renewed focus on efficiencies will be needed to close the gap.

Narrow-moat Beiersdorf missed our sales estimates in the first quarter, but we think this is more to do with the timing of the recovery from the coronavirus than any underlying weakness in the brand. We retain our EUR 89 fair value estimate and think the shares are fairly valued. Having said that, sales should rebound fairly strongly when consumer behaviour normalises, and it's possible the stock will regain momentum later in the year. The resignation of Stefan De Loecker as chairman of the executive board also has no effect on either our valuation or Poor Capital Allocation rating, which is based on the stockpiling of cash on the balance sheet that could be returned to shareholders.

We think Beiersdorf can achieve above-industry-average sales growth in the medium term as a result of white-space geographic opportunities and the potential to take share in adjacent categories, particularly for Nivea. It lags peers on margins, however, and we think a renewed focus on efficiencies will be needed to close the gap.

Narrow-moat Beiersdorf’s fiscal 2020 results were broadly in line with our forecasts, and we make no change to our EUR 89 fair value estimate. Results were overshadowed by the announcement of EUR 300 million in incremental investment over the next five years. This is in line with our thesis, however, that the customer acquisition cost in mainstream personal care is likely to increase, and we maintain our medium-term forecasts, which nevertheless assume some margin expansion. After a pullback, Beiresdorf now looks appropriately priced.

Narrow-moat Beiersdorf reported third-quarter sales figures very close to our estimates. Guidance for the rest of the year indicates that margins will be below the level of last year, and we think this is the trigger for the sell-off in the stock. We have lowered our gross margin estimate for the second half of the year by 150 basis points, and now expect a full-year margin of 57%. This has no impact on our EUR 89 fair value estimate or our narrow moat rating, however, as we expect margins to recover and make no changes to our medium-term assumptions. After the pullback, Beiersdorf trades only marginally above our fair value estimate.