Record Revenue

Henkel is not sexy, but it is profitable

Henkel Persil
Any ideas for making laundry detergent sexy? Henkel is behind All, Wisk, Snuggle and Sun in the United States. Source: Reuters

Some companies lose money, but because their products are exciting and carry great potential, their stock prices soar. America’s Tesla, which burns through mountains of cash on its quest to revolutionize the automobile, is a prime example.

Germany’s Henkel, a 142-year-old consumer and chemicals group known for making things like toilet care products, laundry detergent and glue, is the antithesis. Its profits have lately been outstanding, but its products, while in demand, aren’t very exciting. That’s probably the reason why, despite a terrific financial performance of late, the company’s share price has stagnated.

On Thursday, Henkel’s chief executive, Hans Van Bylen, announced record revenues of €20 billion ($24.6 billion) for 2017, a 7-percent rise over the previous year. He also announced the largest dividend in the company’s history, increasing it by 10.5 percent to €1.79 per non-voting share. Despite all the good news, investors have been distinctly underwhelmed.

For investors, of course, this kind of conservatism lacks sex appeal.

Henkel shares did post a 3 percent increase following the announcement on Thursday, but the group’s stock remains far off its all-time highs, achieved in mid-2017.

So why has the market turned so lukewarm about the Düsseldorf-based group? Henkel is among the more unfashionable of large German companies, lacking the glamour of many of its fellow blue chips. The group is well-respected and has a long history, but cannot rustle up excitement as easily as BMW or Lufthansa. But the group does keep selling well-liked albeit unexciting products, and making more money for itself in the process.

The lacking investor enthusiasm may have a lot to do with the fact that some of its most lucrative businesses are less well known. Most of its revenues come from its adhesives division, particularly from specialized industrial products used in the car and electronics industry. Moreover, the group has a wide range of products and three main units – laundry and home care, beauty products, and adhesives – making it difficult to create an accessible overall narrative about the business that would appeal to investors.

Meanwhile, more well-known products within Henkel’s beauty division are actually bringing in less money. The beauty division, in fact, was the worst performer of the group last year, largely because of price pressure on mass market beauty products in developed markets like Western Europe. So far, Henkel has compensated for those mass market losses with gains among professional customers – like hairdressers and niche markets – which continue to be strong points for Henkel.

Another factor underlying the recent drop in the share price may be the lack of big-name acquisitions in the last few years. Henkel’s last major acquisition two years ago was of US detergent maker Sun for over €3 billion. Another ambitious acquisition could boost performance in Henkel’s beauty products division, but there is no current abundance of good buying opportunities in the sector, and the risk-averse management is unlikely to splurge on a big-name buy.

For investors, of course, this kind of conservatism lacks sex appeal. With three very varied business divisions growing at very different rates, Henkel would, in theory, be attractive prey for aggressive hedge funds looking to split up the group.

However, Mr. Van Bylen can rest easy on that score: The Henkel family continues to hold 61 percent of the company’s ordinary shares and is contractually obligated to retain those shares until at least 2033. This means Henkel will likely remain a company with a broad product portfolio that, although successful, will never set investors’ hearts racing.

Georg Weishaupt covers the luxury and fashion industry for Handelsblatt. To contact the author: weishaupt@handelsblatt.com

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