Premium Grooming And Stationery Demand Will Drive Stronger Long-Term Outlook

Catalysts

About Société BIC

Société BIC designs, manufactures and markets branded, affordable everyday consumer products in stationery, lighters and shavers worldwide.

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

• Acceleration in premium beauty and grooming with Tangle Teezer, supported by rapid distribution gains and strong brand-building in the U.S. and Europe, is set to lift group revenue growth and enhance the Blade Excellence margin profile and earnings power.
• Ongoing trade up to value-added shavers such as Hybrid Flex 5, Soleil Escape and multi-blade ranges in Latin America and Europe is structurally improving category mix, supporting higher average selling prices, stronger net sales and expanding divisional EBIT margins.
• Rising demand for affordable quality writing and learning tools, amplified by back-to-school campaigns and the continued success of the 4-Color franchise and BIC Kids, should underpin resilient stationery volumes and price mix, driving revenue stabilization and margin recovery.
• Strengthening omnichannel and geographic reach, including double digit growth in discounters in Europe and distribution gains across Nigeria, Morocco and broader Africa, is broadening BIC’s addressable market and should translate into faster top line growth and improved earnings diversification.
• Horizon driven operational efficiencies, including manufacturing consolidation such as shifting Mini Pocket Mouse production to Tunisia and continuous cost optimization, are structurally lowering unit costs and improving supply chain agility, supporting higher net margins and free cash flow conversion as volumes recover.

Assumptions

This narrative explores a more optimistic perspective on Société BIC compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Société BIC's revenue will grow by 1.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.3% today to 10.5% in 3 years time.
• The bullish analysts expect earnings to reach €233.6 million (and earnings per share of €5.87) by about December 2028, up from €176.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.9x on those 2028 earnings, up from 11.4x today. This future PE is greater than the current PE for the GB Commercial Services industry at 12.2x.
• The bullish analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.46%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Structural softness in BIC's core categories in mature markets, with U.S. stationery, lighters and disposable shavers all declining in value and ball pens seeing mid single digit contraction, suggests that long term demand in key profit pools may be shrinking. This could weigh on group revenue growth and constrain earnings.
• Intensifying competition from low cost players in Latin America and selective markets in Africa, particularly in pocket lighters and traditional stationery channels, risks forcing higher promotional intensity and limiting pricing power. This could pressure net sales and erode divisional EBIT margins over time.
• Persistent input cost and currency headwinds, including higher raw material and electricity costs and unfavorable FX movements in the U.S. dollar, Brazilian real and Mexican peso, have already driven a 120 basis point decline in adjusted EBIT margin. These factors could continue to dilute profitability and group earnings if not fully offset by price mix and efficiencies.
• Negative trends in parts of BIC's portfolio, such as the underperformance and impairment of the Rocketbook digital writing business and softer e commerce demand in some markets, indicate that not all innovation bets or channels are scaling as expected. This may drag on segment margins and limit overall earnings growth.

Valuation

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

• The assumed bullish price target for Société BIC is €70.0, which represents up to two standard deviations above the consensus price target of €57.9. This valuation is based on what can be assumed as the expectations of Société BIC's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €70.0, and the most bearish reporting a price target of just €49.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be €2.2 billion, earnings will come to €233.6 million, and it would be trading on a PE ratio of 14.9x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of €49.35, the analyst price target of €70.0 is 29.5% 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.