Sunday, 8 June 2014

Analysis of Henkel 2014

Henkel a German consumer products company

Company: Henkel

Business: A German consumer products company that are divided into three business units: Laundry & Home Care (28% of revenue, product examples: Persil, Purex and Pril) , Beauty Care (21% of revenue, product examples: Schwarzkopf, Dial and Syoss) and finally Adhesive Technologies (50% of revenue, product examples: Loctite, Teroson and Technomelt).

Active: They are present in over 70 countries world wide.

P/E: 23.5

Here you can find the previous analysis of Henkel.

Contrarian values of P/E, P/B, ROE as well as dividend for Henkel
The P/E for Henkel is uncomfortable high with 23.5 and the P/B is worse with a ratio of 3.7 which means a no go from Graham. Their earnings to sales are good with 10% and the ROE is fully acceptable with 15.6%. The book to debt ratio is also very nice with a ratio of 1.1. The growth has also for Henkel stopped slightly in 2013 and the yearly growth rate for the last six years have therefore dropped compared to the last analysis and is now down at 2.5% yearly which is only so, so and it gives us a motivated P/E of 9 to 13 which means that Henkel is highly overvalued by the market today. They spend 26% of their earnings on research which is fully reasonable. They pay a small dividend of 1.4% which corresponds to 34% of their earnings so they should be able to keep increasing it with remained earnings.

Conclusion: Graham and I both say no to this one because it simply is too expensive in comparison  to the growth rate that they have managed to accomplish in the last six years. Sometimes I get the feeling that companies such as Henkel receive an evaluation of the market which is only based on their consumer products while the big bulk of their revenue is coming from other sources which is then also reflected in the actual growth rate of the company. Either way Henkel is a clear no go since the P/E and P/B is too high and the dividend is too small.

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