We Expect Geberit’s Quality Will Come Through Despite Challenging Outlook for 2023

There were no major surprises in wide-moat Geberit’s GEBN full-year results after it released provisional results in February. Our long-term thesis remains firmly intact despite a challenging fiscal 2022 and we expect that the group will be able to use its brand reliability and scale to extract market share gains from its smaller peers, despite weakness in residential construction activities. The group reported an EBITDA margin of 26.8%, falling short of its long-term target between 28% and 30% due to significant raw material inflation. We anticipate that the spillover effect of price increases already implemented and the decline in raw material prices, will offset volume pressure and help profitability return to normalized levels. We reiterate our CHF 505 fair value estimate and still see marginal upside from current levels.

Organic sales declined 2% to CHF 3.4 billion during the full year, driven by a decline in volumes via the destocking of inventories at wholesalers, which offset numerous price increases implemented during the year. Geberit’s reputation for reliability combined with largely price-agnostic intermediaries has allowed the group to push through regular price increases, which have supported its sector-leading profitability. The group refrained from providing quantitative guidance.

During the year Geberit returned CHF 1 billion back to shareholders through dividends and buybacks. We anticipate the group will continue to provide shareholders with attractive cash return yields (dividend and share repurchase) due to its strong balance sheet and large cash-conversion rates. Geberit announced a 1% increase in its dividend to CHF 12.6.