By Chantal Marx
Beiersdorf AG is a German multinational company that manufactures personal care products and pressure-sensitive adhesives. Its brands include Elastoplast, Eucerin, Labello, La Prairie, NIVEA, Tesa and Coppertone.
The history of the company can be traced to the late 19th century. On 28 March 1882, Paul Beiersdorf, a pharmacist in Hamburg, filed his first patent for a process to manufacture medical plasters. His laboratory was sold to another pharmacist, Oscar Troplowitz, in 1890, who drove the expansion of the company. A factory was set up in 1892 to manufacture a range of consumer goods developed by the business on a large scale. The business' international expansion began in 1893 with a contract with the United States (US) trading company Lehn & Fink. Labello (1909) and NIVEA (1911) was developed by the company in the early 20th century. Beiersdorf became a public company in 1922, and its stock began trading in Hamburg in 1928.
Beiersdorf is organised into two separate business segments, being Consumer and Tesa. Consumer makes up over 80% of sales and has shown superior growth to Tesa over the last ten years and this is expected to persist.
The dermatology/skincare opportunity is significant
The dermatology market is expected to grow at a compounded annual growth rate (CAGR) of 7.0% over the next decade. The company prides itself in its inhouse research and innovation and has doubled down on three key innovations that are utilised across its major skin care brands (being NIVEA in the mass market, Eucerin in dermatology, and La Prairie at the high end).
Launches have been staggered globally due to regulatory hold-ups, which means that some of these innovations have not yet entered the biggest markets for Beiersdorf. As an example, Thiamidol will only launch in China in 2026 and only launched in the US in 1Q25. Epicelline is in its infancy. As such, it is expected that these three key innovations will result in a notable step-up in growth over the next few years.
Refocus on skincare - fewer, bigger bets
Beiersdorf has recently zoned in on the skincare opportunity after previously having been more broadly exposed to the wider "personal care" category that would include products like deodorants, anti-perspirants, soaps etc. The focus on skincare has seen it reduce its SKU's and tilt sales to products that carry bigger margins. The company has developed two breakthrough skincare ingredients (Thiamidol and Epicelline) in recent years and are confident in the ability of S-Biomedic (acquired in December 2022) to materially change how acne is treated globally - hence a focus on the "Big Three".
Management has also become more targeted and specific in the Research & Development (R&D) process, which has perhaps aided in generating these big breakthroughs. The number of R&D projects was drastically reduced (by ~70%) from 2021, but R&D expenditure increased and sales from innovations grew strongly.
Marketing is the biggest operating expense
Marketing is Beiersdorf's biggest operating expense. It accounted for 53% of operating expenses in FY24 and constituted 33% of sales in the year and was slightly higher than market leader, L'Oreal. Advertising and Promotion was the biggest part of this expense and constituted 21% of sales in FY24. With several product launches into new geographies set to take place over the next couple of years, this is expected to increase.
Beiersdorf has, however, recently changed the way it markets its products. It has increased its marketing budget to "working media" as opposed to spending on strategy, personnel and consulting, and has seen much better returns on marketing than what was previously the case. Working media now constitutes over 85% of advertising spend from 76% in FY19. The digital push has also been meaningful. Digital marketing now accounts for more 70% of working media in FY24 versus ~30% in 2019.
Shareholder structure
Beiersdorf is controlled by Maxingvest AG (parent company of Tchibo), which directly owns 50.49% of shares. This came because of an attempted takeover of the company by Procter & Gamble with the help of Allianz in the early 2000s. Allianz held 19.6% of Beiersdorf's stock at the time. Fearing that Procter & Gamble was interested only in Beiersdorf's brands and not in the company the city of Hamburg petitioned the Herz family, owner of Tchibo, who already had a stake in Beiersdorf, to increase its holdings to 49.9%. Beiersdorf AG bought up 7.4% of its shares and the takeover was staved off.
Financials
Beiersdorf revenue growth has been strong over the last few years, in the main boosted by a post-lockdown surge in skincare sales and strong industry growth dynamics thereafter. Organic growth tempered in FY24, dragged on by a weak performance from its premium brand La Prairie - notably dragged on by value seeking in the China market and a reduction in travel spending by Chinese consumers. Despite this pressure, Beiersdorf has managed to outperform peers in the skincare category over the last two years.
Consensus is conservatively forecasting mid-single-digit organic sales growth over the next three years, which we view as conservative given the substantial white space available to Beiersdorf and exciting launches in certain geographies over the next few years.
Margins have expanded in recent years, and it is expected that positive mix changes (less SKUs in personal care, focus on skincare) will continue to drive an expansion in the gross margin. This will help the operating margin as well, further complimented by discipline in general operating expenditure. Management is targeting ~50bps operating margin expansion medium term.
Return on invested capital (ROIC) has been consistently above the company's weighted average cost of capital (WACC) since 2011. ROIC is expected to expand medium term.
Free cash flow generation has been strong and cash pass through has been healthy over time. The company is ungeared, and the net-cash position is expected to increase meaningfully in the absence of any major acquisitions. This means that the outlook for shareholder returns is healthy and share buybacks are likely to be rolled forward in the coming years.
Investment case summary
Risks
Consensus considerations
Valuation
Beiersdorf is trading on a forward PE of 22.2 times, a notable discount to peers. The company has historically traded at a slight premium. Relative to its own long-term forward PE rating (28.9 times), the stock is trading at a substantial discount.
Excluding the company's substantial cash balance, the company trades on a forward PE below 20 times which is compelling in the context of its defensive nature, ability to compound growth, and decent growth to come.
