Beauty-Care Company Beiersdorf Is Working on a Turnaround. The Stock Is Looking Attractive.

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Beiersdorf
,
the German personal-care products maker that owns the Nivea and La Prairie brands, had a few tough years before the pandemic, and it went downhill from there.

Advertising and promotion—key to sales of cosmetics and toiletries—were reduced between 2012 and 2018, a period in which the company struggled to adapt to a changing market in which smaller players won customers with premium niche products.

Pandemic lockdowns meant that fewer people took vacations and more people stayed home. Sales of Beiersdorf’s beauty and sun-care products declined, and its $550 million purchase of Coppertone in 2019 was unfortunately timed.

In the past three years, Beiersdorf stock (ticker: BEI.Germany) has failed to glow, gaining just 1.84% to 102.65 euros, compared with a 90.25% jump in the shares of rival

L’Oreal

(OR.France) and a 144.69% increase for

Estee Lauder

(EL).

But CEO Vincent Warnery, an alumni of L’Oreal, took the helm in May and has made his mark in Beiersdorf’s dermatological division, which includes the Eucerin and Aquaphor brands.

Under Warnery, Beiersdorf has expanded its global footprint and developed new products. As a result, the company produced double-digit growth across its brands in the first half of this year.

Martin Deboo, an analyst at Jefferies, says that Warnery could make Nivea, which delivers almost 70% of group sales, more upscale. It’s currently perceived as a mass-market brand.

Cosmetics comprise 80% of Beiersdorf’s revenue, while the rest comes from Tesa, which makes adhesive products for home, electronic, and automotive uses.

A turnaround won’t be quick. Beiersdorf has benefited from a postpandemic travel lift that helped it beat consensus estimates on second-quarter and 2021 first-half sales. But second-half profit margins are likely to be squeezed by increased costs and investments in innovation and sustainability initiatives. Investors willing to take a gamble at this early stage will need patience.

Beiersdorf has a €4.7 billion ($5.6 billion) cash pile, and Deboo says using that cash for a stock buyback or acquisitions could increase earnings per share by 25% to 30%.

In an August note, he forecast that the shares could rise 18.25%, to €125, with much of the growth coming from Nivea. But the Herz family, which owns 51.2% of Beiersdorf,is known for being cautious and would need to be persuaded to go on an acquisition drive.

The business, which dates to 1882, is based in Hamburg and employs 20,465 workers. It has a market value of €25.7 billion and fetches a high multiple of 31.6 times this year’s expected earnings. It’s valued at a 30% premium to its peers.

Beiersdorf posted a profit of €636 million in 2020 on sales of €7 billion, down from €788 million on €7.6 billion the previous year.

Warnery said in a statement to Barron’s that, despite economic uncertainty due to Covid-19 and the rise in commodity prices and transportation costs, the company expects full-year sales growth “in both business segments, as well as at group level to be in the high single-digit range.”

Management’s focus on innovation, the promotion of Nivea as a more upscale brand, and an expansion of online sales is likely to boost profit margins and help repair past missteps.

“We don’t see these problems as unaddressable and are certainly not advocating a comprehensive repositioning of Nivea,” Deboo says. “We do think there is room to nudge the brand in a more premium direction, as well as to increase its salience to consumers.”