Beiersdorf/L'Oreal
Mirror, Mirror: A Digital Beauty paradigm, Downgrade Beiersdorf to Underweight
positioning of the two largest players in our European coverage with a sideby-
side comparison of L’Oréal and Beiersdorf. While both are suffering from
fundamental shifts as the industry is disrupted by Digital, we see L’Oréal as
better equipped. We maintain a Neutral on L’Oréal as we await signs of
sustainable top-line and cost competitiveness. Despite its underperformance
YTD, we downgrade Beiersdorf to Underweight as we see few signs that the
company is addressing the industry’s LT challenges.
L’Oréal has the means to face the challenges of the Digital Age, though
challenges remain near term. L’Oréal has started to anchor its strategy in
the Digital Age, although we think it is yet too early to judge the LT impact
as short-term performance remains mixed. Assessed against the top five
growth trends in Beauty, we think L’Oréal scores relatively well versus
global peers. However, we would seek reassurance that the organization is
adapted to foster operational speed and lower the costs base to a more
fragmented market place. Our benchmarking analysis shows that SG&A
remains a key area of savings opportunities.
L’Oréal catalysts and valuation: At 25x PE and 16x EV/ EBITDA
17E,L’Oréal remains among the most expensive stocks in our coverage
universe. In the absence of positive earnings momentum or balance sheet
event we see limited upside for a rerating. Maintain Neutral, Dec-17 target
price €167 from €160.
Beiersdorf strategy is failing to address structural challenges. Despite
management’s efforts to relaunch growth through innovation and market
share gains, Beiersdorf’s cosmetics growth remains at the bottom end of
peers. Assessed against the top-five growth trends in Beauty, it seems less
anchored in the Digital Age. We believe Beiersdorf could use its balance
sheet to expand into new categories/geographies, but so far the company has
been very conservative on reinvestments. Besides it has not been able to
nurture acquisition nor smaller brands in its portfolio, raising questions on
how it adapts its Nivea-centric model.
Beiersdorf catalysts and valuation: At 26x PE and 14x EV/EBITDA 17E,
Beiersdorf remains among the most expensive stocks in our coverage. It has
underperformed YTD, though, given our concerns over its strategy and poor
short-term outlook, we downgrade to Underweight, Dec-17 target price €75
from €80.