Sustainable Products And Channel Shift Will Drive Long-Term Earnings Recovery

Catalysts

About Leifheit

Leifheit develops and markets household cleaning, drying and wellbeing products, with a growing focus on branded, sustainable and innovation-led solutions in Europe.

What are the underlying business or industry changes driving this perspective?

• Scaling of sustainable, reusable product concepts such as SUPERDUSTER and the expanding BLACK LINE range is expected to deepen penetration in grocery, discounter and drugstore channels, supporting a return to mid single digit revenue growth and higher gross margin through premium mix.
• Structural channel migration from hypermarkets toward discounters and e commerce, combined with Leifheit’s strengthening D2C and marketplace presence in France and planned roll out in Eastern Europe, is expected to lift online and direct revenues while improving net margins via lower distribution costs.
• Consolidation of injection molding into the Blatna plant and the broader European manufacturing footprint strategy are set to unlock ongoing productivity gains and unit cost reductions, which is expected to translate into a sustained gross margin uplift and expanding EBIT margin.
• The SAP S/4 ERP conversion and data driven process improvements are poised to streamline planning, inventory and pricing decisions, supporting leaner working capital, structurally stronger free cash flow and ultimately higher earnings quality.
• Brand relaunch initiatives, coupled with a more focused innovation pipeline in core cleaning and drying categories, are expected to position Leifheit to regain volume in line with or ahead of the market when consumer sentiment normalizes, supporting operating leverage and EBIT growth from a cyclically depressed revenue base.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Leifheit's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.9% today to 5.6% in 3 years time.
• Analysts expect earnings to reach €14.7 million (and earnings per share of €1.59) by about December 2028, up from €4.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, down from 31.6x today. This future PE is greater than the current PE for the GB Consumer Durables industry at 8.8x.
• Analysts expect the number of shares outstanding to decline by 2.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.26%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent weakness in European consumer confidence, especially in Germany and broader EU nonfood spending, could structurally limit demand for discretionary household products and keep group revenue growth below the targeted 3 to 6 percent range, constraining earnings recovery.
• If the ongoing shift from hypermarkets toward discounters and nonfood discounters accelerates faster than Leifheit can secure profitable listings and differentiated assortments, pricing pressure and more promotion driven sales could erode net margins over time despite efficiency gains.
• Execution risk in key strategic projects, such as the SAP S/4 conversion and the consolidation of injection molding in Blatna, could lead to operational disruptions, cost overruns or delayed productivity benefits, weighing on EBIT margin and slowing earnings growth.
• A continued structural decline or competitive pressure in noncore and private label segments, including brands like Soehnle and Herby, could offset growth in core cleaning and drying categories and D2C channels, leaving total group revenue and EBIT below midterm ambitions.
• Reliance on significant marketing investment for the brand relaunch, innovations such as SUPERDUSTER and BLACK LINE, and expansion into new channels may not translate into sufficient volume uplift in a weak macro environment, resulting in lower operating leverage and subdued earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €22.17 for Leifheit based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €261.3 million, earnings will come to €14.7 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of €15.2, the analyst price target of €22.17 is 31.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.