Energizer Holdings, Inc

ENR Details

Energizer Holdings, Inc (NYSE: ENR) is one of the leading manufacturers of primary batteries and portable lighting products globally. Its key global brands include  Energizer®, EVEREADY®, Rayovac®, and VARTA®.

Q2FY21 Result Performance (For the Second Quarter Ended 31 March 2021)

Increase in Net Sales by 16.7%: Robust demand across batteries and auto in both geographical segments has resulted in a net sales growth of 16.7% to $685.1 million.

A Decline in Gross Margin: It witnessed a 110 basis points decline in adjusted gross margin from the prior year to 40.5% mainly weighed down by the channel, customer, and product mix along with the impact of operating costs. The benefits of synergies of around $14 million and favourable currency exchange rates partially offset margin decline.

Registered a Diluted Net Loss from Continuing Operations Per Common Share of $0.21: It has reported a diluted net loss from continuing operations per common share of $0.21 due to a loss related to debt refinancing of $0.78 per share.

Financial Snapshot (Source: Company Reports)

Succession of CFO

The company, on 30 June 2021, announced that Timothy W. Gorman, the Executive Vice President and CFO of the company has opted to retire from his position. He will be replaced by John Drabik, Senior Vice President, Corporate Controller, and Chief Accounting Officer effective October 1, 2021. Timothy W. Gorman, however, will remain in an advisory capacity in the company through December 31, 2021.

Completion of Offering of €650 Million Senior Notes

Completion of the Offer: The company, on 23 June 2021, has declared the completion of the offering of the €650 million of 3.500% senior notes due 2029 by its indirect wholly-owned subsidiary, Energizer Gamma Acquisition B.V.

Use of Proceeds: Energizer Gamma Acquisition B.V will utilise the net proceeds from the offer along with cash on hand towards redeeming the full outstanding senior notes worth €650 million aggregate principal amount due 2026 and to pay the fees and expenses with respect to the redemption of the 2026 Notes and the offering of the Notes.

Outlook

ENR delivered strong performance across all categories and geographies during the Q2FY21. It recorded organic net sales growth of 12.7% or $74.7 million in Q2FY21.  Encouraged by sustained strong organic growth in Q2FY21, ENR is expecting to achieve net sales growth in the range of 5% to 7% for FY21 owing to distribution gains, higher battery demand, and favourable currency impacts. It also expects to attain adjusted EBITDA in the range of $620 to $640 million and adjusted earnings per share of between $3.30 to $3.50 for FY21. Further, it estimates its adjusted free cash flow to stay at the lower end of its earlier guided range of $325 to $350 million due to working capital requirements, with respect to inventory to cater to increased demand.

Key Risks

The company is exposed to the risk of currency fluctuations, which may adversely hurt its financial performance. Volatility in production costs primarily the raw material prices, could erode its profit margins. Further, the risk of changes in the retail environment and consumer preferences also remain a major concern. Besides, it faces the risk of supply chain disruption due to its reliance on certain significant suppliers.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock, having taken support around the 50% retracement level of $40.33, has given close around the previous week’s close at $40.92 for the ongoing week. The technical indicator RSI with a reading around 39 and a flattish curve at the end, suggests flat to weak momentum for the stock.

Going forward, the stock may have resistance around the level of $51.28 whereas support could be around $32.70.

Stock Recommendation

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price that reflects a rise of low double-digit (in % terms). We have assigned a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering cost side inflation and expectation of lower adjusted free cash flow generation due to higher capex. The stock has made a 52-week low and high of $38.59 and $53.19, respectively.

Meanwhile,  the company on 2 June 2021, has announced its intention of the broad-based increase in prices across its global battery business to equipoise the impact of cost side pressure. These price increases will be phased in throughout fiscal 2022 and it aims to generate the entire benefit of these changes in the back half of fiscal 2022.

For the purposes of relative valuation, we have taken peers like Newell Brands Inc (NWL.OQ), Church & Dwight Co Inc (CHD.N), to name a few.

Considering the aforementioned factors, elevated battery demand, steady strong organic growth, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $40.92 per share, down by 0.22% on 19^th July 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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