Key insights
- The author discusses headwinds faced by European consumer staples, including over-diversification and competition from private labels. They highlight Essity, Orkla, and Unilever as potentially attractive based on their PE ratios, suggesting improved efficiency and profitability through streamlining product mixes. However, the analysis focuses on European markets, with limited direct implications for U.S. equities, resulting in a slightly negative influence due to potential read-across concerns.
European consumer staples have had severe headwinds lately, providing (-1,6%) and consumer discretionary (-5,2%) over a three years period. Having quite a overweight in discretionary, I am now looking for opportunities in consumer stapels ... Essity, Orkla & Unilever are all trading at multiples, whereof from a risk/reward perspective are starting to become exciting. Yes, these are not fast growers, but they are proving stability and provide a decent stable yield.
PE 2025 -> 2028
Essity, 14.4x, 14.6x, 13.1x, 12.3x
Orkla, 9.8x, 16.1x, 14.8x, 13.8x
Unilever, 21.5x, 16.2x, 15x, 14.7x
Source: Marketscreener
From my knowledge the issues are stemming from over diversifying and private labels. Over diversifying as a company with severel brands will have higher marketing expenditures and lower return on advertisement expenditures - even though, many brands have the opportunity to appeal to many different market segments. These house of brands, usally command a premium on the stock market and have lower cash flow volatility. I believe this overhead of brands, now has become a liability - party illustrated by a sector wide attempt to streamline their product mix, most likely increasing efficiency and thus profitability.
With regards to private labels, the consumer staples are facing severe competition issues - private labels can command a better placement in grocery stores, better data and are often perceived as being the same quality for less.
Is there anyone out there whom has any input regarding - consumer staples broadly speaking and which companies might be interesting?.
*Yes I am aware PE is not everything ...
Not financial advice and I can have made mistakes.