Beiersdorf Earnings: Mass Market Segment Fared Well in 2022, Back to Growth in Premium in 2023

We are increasing our fair value estimate for narrow-moat Beiersdorf BEI 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.

The gross margin for the consumer segment ended the year at 59.3%, 100 basis points lower than in 2021. This was primarily driven by significant raw material and logistic cost inflation. Pricing and mix contribution offset only three quarters of the total cost of inflation. But we expect the carry-through of price increases implemented in late 2022, together with further, more moderate price increases and the recovery of the ultra-premium La Prairie brand in China, to drive an improvement in the gross and operating margins in 2023, to the tune of 60 basis points on average.

The flagship Nivea brand, which accounts for about two thirds of sales for the consumer segment, delivered strong organic sales growth of 9.6% in 2022, with positive contributions from both price and volume. The lower-priced basic ranges performed particularly well. This is unsurprising given the low penetration of private-label penetration in the skincare segment of just 2%. This means that consumers are more likely to trade down to a more affordable branded product rather than switch to a generic one as the cost of living pressure mounts.