Geberit Earnings: Showcasing Quality in Challenging Environment, Volume Declines 25%

Wide-moat Geberit’s ability to withstand a 25% decline in volume and still deliver a 30% EBITDA margin is testament to the brands' strong pricing power and relentless focus on productivity improvements. Second-quarter organic revenue fell 14% in constant currency to CHF 769 million, considerably below company-compiled consensus of CHF 855 million. Destocking at wholesalers and a declining residential construction sector, particularly in the company's largest market in Germany, where residential permits have fallen sharply, were the main causes of lower volume. However, there is some positivity heading into the remainder of the year, as Geberit faces easier comparables and stock levels at wholesalers are below normal levels. While we lower our revenue forecasts for 2023 to reflect the challenging first half, our longer-term estimates remain unchanged, as does our CHF 510 fair value estimate, as we believe Geberit will be able to take market share from smaller competitors. The shares are trading in undervalued territory, offering a rare opportunity to acquire at a discount one of the highest-quality European industrial businesses under our coverage.