Philips Domestic Appliances, a nice sector outlook

SECTOR :

The household appliance sector is expected to grow by around 8% annually over the period 2020 to 2024. Despite the COVID-19 pandemic, the sector has remained efficient although impacted by restrictions, particularly relating to the opening of stores and change in consumer behaviours. The sector remains very competitive and fragmented with many competitors. The main performing segments are kitchen, air conditioning and cleaning equipment due to the current trend of remote working and well-being at home.

GETLINK :

Philips Domestic Appliance is a branch of Royal Philips with an international presence which develops, produces and sells numerous household appliance products in several segments such as kitchen equipment, for clothing or even the home.

 

POINTS :

> Pros : The company is recognized in its sector with a leading position, its strong international presence and its very broadly diversified offer. The company has been able to maintain a decent performance despite the COVID-19 pandemic with stable EBITDA in 2020 and a very slight drop in revenue (-4.6%). The liquidity of the company is quite good thanks to an RCF of 850mn EUR and a positive FCF. The company should benefit from the recovery of the economy and the estimated growth of the sector by 2024. Hillhouse Capital will buy PDA from the parent company and might implement synergies in terms of e-commerce, distribution and marketing.

> Cons : The company sees its debt soar with a Net Debt / EBITDA ratio of 5.1 estimated for 2021, which presents a certain risk in terms of leverage. The separation of PDA from Royal Philips due to the acquisition by Hillhouse Capital is expected to increase costs in the short term and negatively impact the company's credit measures.

 

VIEW :

We are quite confident in PDA and its ability to generate income. Of course, we remain attentive to the sharp rise in its debt used to finance the acquisition of the company by Hillhouse Capital. The sector also appears to be on the right track with optimistic growth forecasts in the short to medium term. The rapidly changing global situation affecting consumer behaviours prompts us to remain cautious in our exposure. We thus decided to subscribe to the bond issue dated June 11, 2021. The bond issued amounted for EUR 650m maturity 2028 with a first call date in 2024 rated B1 (Moody's), a coupon of 3.125 % paid semi-annually and an issue price at 100% of its face value.