We Expect Geberit to Successfully Navigate Challenging Outlook After Tough Q2; FVE Maintained

Wide-moat Geberit was unable to offset significant cost inflation during the first half of 2022, which saw EBITDA (in local currency) decline 4.6% year over year despite organic revenue growth of 11.3%. However, we don’t believe that one weak set of quarterly results detracts from the group’s investment case and business quality. We anticipate that the second-quarter EBITDA margin of 27% is likely to be a trough for the year, due to the delayed effect that previously announced price increases have on mitigating inflation, as well as further price increases that have been implemented for the second half, combined with a slight decline in raw material costs. While the market appears slightly disappointed by the second-quarter result, Geberit still managed to report best-in-class profitability, which we believe emphasizes its strong pricing power and brand reputation despite a challenging economic environment. We have made some adjustments to our forecasts but maintain our CHF 505 fair value estimate. We would require a slightly greater margin of safety before initiating a position.