Business Strategy & Outlook
In January 2022, Henkel announced the decision to combine two of its business units (beauty care, and laundry and home care) into one consumer unit in an attempt to achieve more synergies in its
customer and channel execution after years of subpar performance, especially in North America. While the believe is that operating an overall larger portfolio is important in driving customer management and limited upside in terms of growth as there is little marketing and innovation expertise to be shared between the units. Moreover, large competitors in the space are moving in the opposite direction, with Unilever for instance recently announcing that it would move from three divisions to five business groups, with each responsible for end-to-end strategy and execution.
Nonetheless, Henkel’s CEO Carsten Knobel updated the company’s midterm ambition following the announcement of the customer unit formation. The firm now targets midterm organic sales growth of 3%-4%, up from 2%-4% previously, along with mid- to high-single-digit adjusted EPS growth at constant currencies, free cash flow expansion, and an adjusted EBIT margin of 16%. Notably, this level of adjusted EBIT margin falls below the peak level of 18% achieved in 2018, signaling that management is recognizing that some of the recent higher investment in marketing and innovation would not be temporary, with limited margin opportunities remaining. Given the firm’s track records, a 16% medium-term adjusted EBIT would imply an improvement in competitiveness in the consumer space, which don’t see as likely at this time. That applies to the top line as well, and the measures announced thus far do not warrant an increase in growth expectations. In order to hit its midterm ambitions, that more drastic portfolio decisions must be made, which should include further trimming of the brand portfolio, a clear plan to address the underperformance in North America and in the beauty care segment, as well as providing more clarity regarding the adhesive’s unit, which has been overlooked to some extent and unjustly punished for underperformance on the consumer side.
Financial Strengths
Henkel has a strong balance sheet, and it has historically been run with very conservative levels of leverage. Even at the time of the acquisition of the Sun Products corporation in 2016, which was financed with debt, debt/EBITDA only increased to about 1 time. It has remained fairly stable at
around 1 time since then, with net debt/EBITDA declining, averaging around 0.5 times over the last 5 years, significantly below large-cap consumer staples peers for which the average is closer to 2.0 times.
Acquisitions have declined in importance since the Sun Products purchase, but remain an integral part of management’s stated strategy. To this point, one of the reasons given for the formation of the Henkel Consumer Brands segment was to enable the company to step up its active portfolio management, both in terms of divestment or discontinuations of noncore brands and businesses, and
by creating a stronger basis for acquisitions across the consumer space. The restructuring of the business will only be completed in 2023, so it’s do not expect to see a massive transformative initiative until at least 2024. In the absence of acquisitions, however, Henkel is unlikely to need to raise capital, and even given the unambitious mid-single-digit estimate of EBITDA growth over five-year forecast period should ensure that the net debt/EBITDA ratio remains controlled for the foreseeable future, all else equal.
Bulls Say
- The combination of the beauty care and the home care segments under one roof in the consumer segment should result in more rapid and material portfolio decisions.
- Henkel offers plenty of balance sheet optionality and should be able to pursue targets ranging from bolt-on to transformative.
- Henkel’s clear market leadership in adhesives technologies through its differentiated and customizable offering gives it a unique position to benefit from secular trends around lighter yet strong materials and energy efficiency.
Company Description
Two distinct customer groups comprise Henkel. The consumer segment (around 50% of consolidated 2021 sales) is laundry and home care, including the Persil and Purex laundry detergent brands, and beauty care, including the Schwarzkopf brand in hair care, and the Dial brand in hand soap. The adhesives technologies segment makes up the remaining 50% of sales. Sales from Western Europe accounted for 30% of the firm’s consolidated total in 2021, while Asia-Pacific and North America accounted for 17% and 25%, respectively.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy and Outlook
Comerica is predominantly a commercial-focused middle-market bank, with over 90% of loans related to commercial lending and the majority of these related to its middle-market business. While the bank started in Michigan and remains a key player in this market, it has gradually expanded into California and Texas, which offer more growth potential. This has been a multiyear project and included moving the headquarters to Dallas from Michigan in 2007 and greatly expanding operations in Texas by acquiring Sterling Bancshares in 2011. Expansion in California has happened gradually for years, and the market has become Comerica’s largest, with roughly one third of the bank’s loans now based there.
The bank has concentrations in the commercial real estate market, dealer floor plan lending, and mortgage banking. Comerica has a relatively small energy portfolio, which is likely to remain at 5% or less of the total loan book. The bank also has two business units primarily focused on serving institutional investors; the technology and life sciences unit and the equity fund services unit. Overall, the bank has a diversified set of commercial-focused lending and advisory segments.
Comerica remains very leveraged to interest rates, as the vast majority (roughly 80%) of its loans are adjustable rate, making the bank one of the most interest-rate-sensitive names. This, combined with the bank’s sticky deposit base from its core commercial clients, makes the bank ideally positioned for rising rates. The flip side of this business model is that the bank can be more pressured during extended periods of low rates. With a rising rate environment now on the horizon, Comerica should see its profits materially increase. It is foreseen Comerica will be one of the biggest beneficiaries of this rate backdrop. Comerica’s overall strategy of adding value through its deep, advisor-style relationships with small and midsize business clients is appreciated. Fee streams related to payments and wealth management will also help the bank outlearn its cost of capital over the long term.
Financial Strength
It is held Comerica is in good financial health. While losses from the energy portfolio ticked up in 2016 and again in 2020, the bank has managed the costs well and has shown that the risks are well managed. The common equity Tier 1 ratio has generally been above the bank’s 10% goal, which is viewed to be an appropriate target.
Bulls Say’s
- A strong economy and higher rates are all positives for the banking sector and should propel revenues and profitability even higher. This is particularly true for Comerica, which has uniquely high-rate sensitivity.
- A healthy business environment should uniquely benefit Comerica’s loan growth compared with many peers, as the bank almost exclusively focuses on commercial business, not retail.
- The bank’s superior commercial relationships are hard to replicate and lead to a good deposit base, increasing the value of the Comerica banking franchise.
Company Profile
Comerica is a financial services company headquartered in Dallas. It is primarily focused on relationship-based commercial banking. In addition to Texas, Comerica’s other primary geographies are California and Michigan, with locations also in Arizona and Florida and select businesses operating in several other states as well as Canada.
(Source: MorningStar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy and Outlook
It is long relied that long believed that Core Laboratories is one of the highest-quality oilfields-service companies. For one, with a wide moat rating, Core Lab possesses the strongest moat across experts’ entire oilfield-service coverage. The company’s foundational core analysis business in the reservoir description segment, in particular, has been virtually unchallenged over the past three decades. The business passes the Warren Buffett quality test, whereby even an “idiot” could likely run the business with some profitability.
Yet, Core Lab has long been managed with the utmost skill, in analysts’ view. The 1998 acquisition of Owen Oil Tools and subsequent repositioning of the business to offer high-quality solutions for fast-growing U.S. shale markets was a stroke of brilliance. The combination of top-notch management plus a strong underlying business has delivered unrivalled levels of returns on capital over the past two decades.
Financial Strength
Core Laboratories is in good financial health overall, following a small liquidity scare in 2021, when the company was forced to issue equity to cure breaching of a debt covenant. Now, the company has no debt maturing until September 2023, with most debt not maturing until 2026 or later. Net debt stood at about 2.7 times adjusted EBITDA as of year-end 2021 and should fall below 2 times by end 2023.
Bulls Say’s
- Core Lab has generally bested all oilfield-services peers in returning cash to shareholders.
- The company will benefit as U.S. shale operators shift to using more advanced core analysis to inform the development of their resources.
- Core Lab will benefit as the world’s oilfields become increasingly mature, as it has specialized in understanding how mature reservoirs change over time.
Company Profile
Core Laboratories is an oil-services company that helps oil and gas companies better understand how to improve production levels and economics with core and reservoir analysis. Additionally, the company sells a number of products helping its customers to maximize production levels from their oil and gas assets. The company operates in more than 50 countries and has more than 5,000 employees.
(Source: MorningStar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
TC Energy faces many of the same challenges as Canadian pipeline peer Enbridge but also offers important contrasts. Both firms offer a 5%-7% growth profile and a utilitylike 95%-98% of earnings that are highly regulated or contracted, with several years of project backlog, despite Enbridge largely focusing on oil assets, while TC’s focus is natural gas. However, anticipate that any major new pipeline project for either firm will face substantial stakeholder challenges from a legal, regulatory, or community perspective, raising the risks and costs.
The most critical differences between Enbridge and TC Energy arise from their approaches to energy transition. Canadian carbon emissions taxes are expected to increase to CAD 170 a ton by 2030
from CAD 40 today, meaning it is critical that TC Energy, with its natural gas exposure, follow Enbridge’s approach to rapidly reduce its carbon emission profile and continue to pursue projects like the Alberta Carbon Grid, which will be able to transport more than 20 million tons of carbon dioxide. These taxes potentially increase costs for Canadian pipes compared with U.S. pipes but also make
hydrogen a viable alternative to gas-powered electricity generation by 2030 in Canada, presenting an emerging threat. TC Energy recently introduced targets to reduce its Scope 1 and 2 intensity
by 30% by 2030 and reach net zero by 2050, which is a start.
In addition, Enbridge’s backlog is more diversified across its businesses already, and it already has a more material renewables business, including hydrogen, renewable natural gas, and wind efforts. While the renewables business lacks an economic moat today, it is an important area of investment for TC Energy that it needs to pursue. The renewables investments can compete for capital across the rest of the portfolio, generating reasonable returns on capital, allowing the overall enterprise to adapt to the markets as they evolve. This shift is especially the case as a CAD 170 per ton carbon tax in Canada opens the door for potentially sizable investments to reduce carbon emissions.
Financial Strengths
TC Energy carries significantly higher leverage than the typical U.S. midstream firm, with current debt/EBITDA well over 5 times. Its long-term target is in the high 4s, again materially higher than peers which are generally targeting leverage of 3-4 times. Still, the high degree of leverage is
supported by the highly protected nature of its earnings stream. As capital spending declines over the next few years to around CAD 4.7 billion, the TC Energy to currently reach the 4s in the latter half of the decade. Lower capital spending would move this date forward materially. Beyond
the high leverage, TC Energy is also unusual in that it will continue to rely on the capital markets to meet about 20% of its expected capital expenditures over the next few years, meaning that some projects on a regular basis will depend on the health of the capital markets. Midstream peers are
largely transitioning to generating free cash flow after distributions or dividends, and in some cases, the shift to be permanent. TC Energy has outlined plans to spend about CAD 5 billion annually on a continued basis. About CAD 1.5 billion-CAD 2 billion is maintenance spending on its pipelines, and 85% of this is recoverable due to being invested in the rate base. Bruce Power and the U.S. and Canadian natural gas pipelines will consume about CAD 1 billion each annually. ESG-related opportunities such as using renewable power
to power its own operations or seeking carbon capture efforts would be on top of this spending. TC’s dividend growth remains prized by its investors, and 3% growth going forward is easily supportable under the firm’s 60/40 framework.
Bulls Say
- TC Energy has strong growth opportunities in Mexican natural gas as well as liquefied natural gas.
- The company offers virtually identical growth prospects and a protected earnings profile to Enbridge but allows investors to bet more heavily on natural gas.
- The Canadian regulatory structure allows for greater recovery of costs due to project cancelations or
producers failing compared with the U.S.
Company Description
TC Energy operates natural gas, oil, and power generation assets in Canada and the United States. The firm operates more than 60,000 miles of oil and gas pipelines, more than 650 billion cubic feet of natural gas storage, and about 4,200 megawatts of electric power.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
