Morningstar | Geberit 1H18 Overall Solid; Ceramics (Sanitec) Weak
Geberit's first-half performance was strong in its legacy plumbing business and in emerging markets, but the ceramics business, acquired with the Sanitec merger, looked comparatively weak. We are maintaining our narrow moat rating and CHF 330 fair value estimate. We believe shares are overvalued.Reported revenue was up 11% and the EBIT margin was up a touch by 20 basis points, a good result considering the pressure from raw material prices this year. Organic growth was up at 4%, not far off from the 5% posted by Legrand, which is also heavily tied to the construction cycle.
On a product and market level, Geberit's legacy business toilet and piping systems, with a stronghold in German-speaking countries, was solid with 4%-5% organic growth. The growth was likely more cycle-driven than reflecting market share gains. We expect that the shortage of plumbers in those countries continues to leave a sizeable backlog of potential installations. Emerging markets growth was in the double digits, but this was coming from a much a lower base of business than other markets. Other European regions looked weaker. These represent further opportunities where the ceramics (Sanitec) business is more dominant in terms of market share and where Geberit would like to expand its market share in toilet installations in particular. Organic revenue change in the Nordics, U.K./Ireland, and France amounted to negative 1.5%, negative 8.4%, and positive 0.8%, respectively.
Geberit is a supplier of sanitary technology products. Co. develops, produces and distributes sanitary products and systems for the residential and commercial new construction and renovation markets. Co.'s product range consists of: the Sanitary Systems product area with the Installation Systems, Cisterns & Mechanisms, Faucets & Flushing Systems and Waste Fittings & Traps product lines; and the Piping Systems product area with the Building Drainage Systems and Supply Systems product lines. Co.'s products are sold through the wholesale channel to in more than 120 countries.
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