The Procter & Gamble Company (PG)

Equity
US
Consumer Cyclical

RISK

RETURN

Key risk factors

Negligible price volatility

Strong trading liquidity

Strong & resilient to price shocks

Key return factors

Very strong margins and returns

Solid dividends

Greatly overvalued vs peers

Company profileThe Procter & Gamble Company provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The Beauty segment offers conditioners, shampoos, styling aids, and treatments under the Head & Shoulders, Herbal Essences, Pantene, and Rejoice brands; and antiperspirants and deodorants, personal cleansing, and skin care products under the Olay, Old Spice, Safeguard, Secret, and SK-II brands. The Grooming segment provides shave care products and appliances under the Braun, Gillette, and Venus brand names. The Health Care segment offers toothbrushes, toothpastes, and other oral care products under the Crest and Oral-B brand names; and gastrointestinal, rapid diagnostics, respiratory, vitamins/minerals/supplements, pain relief, and other personal health care products under the Metamucil, Neurobion, Pepto-Bismol, and Vicks brands. The Fabric & Home Care segment provides fabric enhancers, laundry additives, and laundry detergents under the Ariel, Downy, Gain, and Tide brands; and air care, dish care, P&G professional, and surface care products under the Cascade, Dawn, Fairy, Febreze, Mr. Clean, and Swiffer brands. The Baby, Feminine & Family Care segment offers baby wipes, taped diapers, and pants under the Luvs and Pampers brands; adult incontinence and feminine care products under the Always, Always Discreet, and Tampax brands; and paper towels, tissues, and toilet papers under the Bounty, Charmin, and Puffs brands. The company sells its products primarily through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, specialty beauty stores, high-frequency stores, pharmacies, electronics stores, and professional channels, as well as directly to consumers. The Procter & Gamble Company was founded in 1837 and is headquartered in Cincinnati, Ohio.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

25.80

26.10

PEG

5.20

P/B

7.80

6.00

P/S

4.60

P/FCF

24.10

21.00

EV/EBITDA

17.50

15.60

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. Specifically, the stock is expensive' on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 7ppts over past six months and grown 0ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Somewhat favourable

The average target price is 162 and suggests 2% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 183.0. This translates into 11% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 156.0. This is equivalent to 6% downside potential in the worst case.

Profitability: Very strong

RoE

The Procter & Gamble Company reported a return on equity (RoE) of 30.7% in the last 12 months, down from 31.7% in FY23. The market consensus projects an RoE of 27.8% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 12.6% in the last 12 months, an increase from 12.4% in FY23. The market analysts predict that RoA will be 11.0% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 17.6%, above the peers. The consensus estimate for FY24 for RoCE is 22.3%, again ahead of the peers.

Net margin

EBITDA margin

Historically, PG has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 18.0%, a growth from 17.6% in FY23. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 28.2% in the last 12 months, up from 28.1% in FY23.

RoIC / WACC = 3.6(excellent value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.6 in the past several years. This ratio implies a excellent shareholder value creation.

Growth: Average

Revenue

EBITDA

EPS

Free cash flow

PG reported revenue of USD 84 060mn in the last 12 months, up 0% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 2% from FY23 to USD 6.29. Market expects EPS to reach USD 6.14347 in FY24.Revenue has been growing very slowly over the past several years (middle negative), while EBITDA growth has been weak. Poor revenue growth and insufficient cost control translated into very slow bottom-line growth in recent years (negative-to-neutral). The FCF trend is in line with EBITDA. On the positive side, revenue and EPS dynamics is very stable.

Dividends: Solid

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been good and slightly above its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and excessive margin volatility.

Volatility: Negligible

In normal market circumstances, PG is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, PG is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Very low

PG boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.