Stock pick of the week: Henkel
Published 04/10/2011 | 12:22
Henkel operates worldwide with leading brands and technologies in three business areas: Laundry & Home Care (27pc of sales), Cosmetics/Toiletries (22pc) and Adhesive Technologies (51pc).
Its brands include Persil, Schwarzkopf and Loctite.
Henkel offers an attractive mix of defensive businesses combined with more cyclical parts (Industrial adhesives).
The company is targeting 3pc-5pc organic sales growth in 2012 and greater than 10pc earnings per share growth.
Emerging Markets exposure (45pc of 2012 sales) will be a key growth driver.
Adhesives are benefiting from a number of structural drivers; 1) replacing traditional fastening methods (eg automotive industry), 2) new applications from iPhones to LED lighting and 3) growing consumption in emerging markets.
Adhesives and sealants consumption per capita in kilo is 9.4 in Germany vs 1.5 in China and 1 in Brazil.
Henkel is also guiding for an EBIT margin of 14pc in 2012 which looks conservative considering its adhesives margin of 13.7% is well below peers.
The stock trades at only 11x 2012 earnings, significantly below its medium term average price earnings multiple of 14x and a 30pc discount to the sector.
The company boasts a free cash flow yield of over 11pc and lowly geared balance sheet (Net Debt/EBITDA 0.7x).
Overall, we see Henkel as a defensive cyclical name with strong growth prospects and an undemanding valuation.
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