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Ontex Group NV Research Report


Robur link for Ontex Group: here

ISIN: BE0974276082


Ontex Group is a Belgian company that makes hygiene products – things like diapers and nappies for babies, incontinence products for adults and the elderly, and female hygiene products.  It operates both as a provider of “white label” products which major retailers can brand themselves, and under its own brands.



Ontex has excellent growth numbers as these financials above illustrate.  They have managed to keep working capital growth modest while financing the increase in revenues, which as we know is a sign of excellent financial management.

The one black cloud on the Ontex horizon is that goodwill (EUR 1.096 bn) exceeds the value of the shareholder equity, which is not something we are ever very comfortable about.  Ontex has grown significantly by acquisition, but to us this heavy goodwill component illustrates a company which is effectively quite highly leveraged.

What is Ontex doing?

Although the market for adult incontinence products is growing in developed markets like Europe and North America as populations age, that is not where the real money is.  Babies and women of child-bearing age are where the money is, and that is not a growth area in developed countries.

Ontex therefore did a simple thing:  they looked at the table of the world’s countries by population, and picked the Catholic ones.  Out of the top ten most populous countries, that results in Brazil and Mexico.  So in 2016, Ontex bought Grupo Mabe in Mexico, and just recently they have bought the diaper division of Hypermarcas in Brazil – essentially using cash they already had in the bank.  The Mexican acquisition is going well; the Brazilian operation is too recent to know about.

Ontex is not ignoring other markets.  Sales of their products in Eastern Europe reached 40% market share and in Russia reached 10% market share.  In these areas, Ontex currently provides “white label” products to local retailers.  In the Middle East – North Africa market, revenues grew 14% in 2016, and reached almost 12% market share in baby products in Turkey.

In 2016, 50% of its revenues came from outside the developed markets of Western Europe for the first time, and also for the first time, 50% of revenues came from own-brand products.


Cash Flow


For company with such rapid growth, we think this is a good diagram.  Acquisitions and revenue growth have been financed by issuing stock and above all from operations cash.  More debt has been repaid than issued over the last five years.  Free cash flow has been between 60% and 70% of cash from operations for the last three years.  As noted above, financial management appears to be very good.



Ontex is not especially cheap, with P/E at 17.4, price:free cash flow at 19.5, price:book at 2.31, and a Graham multiplier of 40.  That suggests the price is discounting significant growth in 2017.  On the other hand, if those sales figures and market penetration figures were generated by an electronic components company, the shares would be considerably more expensive.  Meanwhile, the current price is significantly lower than the average from October 2015 – March 2016.

At 1.77%, the yield is not particularly attractive.  Free cash is being used for developing the business rather than paying dividends.

The real reason to suggest Ontex is as a takeover candidate.  It is carving out considerable market share in expanding markets for its products.  If it is successful in these ventures, and starts to generate even more cash, it would make an attractive acquisition for one of the retail health-product majors.


Disclaimer: We have recently taken a position in Ontex Group. Invest at your own risk