text stringlengths 1 711 |
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Figure 46: EBITDA Margins vs. Peers |
CY22 |
-10% |
-5% |
0% |
5% |
10% |
15% |
20% |
25% |
30% |
RKT HLN PG KVUE CL OR CHD ELF EL COTY ULVR KMB BEI CLX NWL HNST |
EBITDA Margin Average Median |
Source: Company reports and J.P. Morgan estimates.; *OLPX EBITDA Margin 60.9% removed for ease of comparison. |
Balance Sheet, FCF, CapEx |
Following the companys IPO, balance sheet leverage is around 2.1x net debt to trailing |
12-month adjusted EBITDA (or roughly 2.4-2.5x gross debt to trailing 12-month |
adjusted EBITDA) assuming roughly $9.0 billion in senior notes and commercial paper |
and roughly $1.2 billion in cash. With EBITDA growth and strong FCF generation, we |
see KVUE deleveraging to around 1.8x net debt to BITDA by 2024 and 1.6x by 2025. |
The company could potentially delever faster (or increase cash returns to shareholders) |
in the event it doesnt pursue acquisitions as we believe the company is building in |
cushion to its cash/balance sheet outlook to accommodate bolt-on M&A. Relative to its |
peer set, KVUEs balance sheet leverage is largely middle of the pack with PG (1.2x) |
and CL (1.6x) lower and HLN (3.6x) higher. |
Figure 47: KVUE Leverage Outlook |
2.4x |
2.2x |
2.1x |
1.9x |
2.1x |
2.0x |
1.8x |
1.6x |
0.0x |
0.5x |
1.0x |
1.5x |
2.0x |
2.5x |
3.0x |
Post-IPO 2023E 2024E 2025E |
Gross Debt to EBITDA Net Debt to EBITDA |
Source: Company reports and J.P. Morgan estimates. |
This document is being provided for the exclusive use of DAVID WANG at MARLOWE PARTNERS LP. |
31 |
Andrea Teixeira, CFA AC |
(1-212) 622-6735 |
andrea.f.teixeira@jpmorgan.com |
North America Equity Research |
29 May 2023 J P M O R G A N |
From a free cash flow perspective, the company is targeting >100% FCF conversion (% |
of adjusted net income) in each of 2023-2025, and we model for free cash flow to grow |
at a three-year CAGR of +11% to $2.8 billion in 2025. The free cash flow outlook is |
supported by solid adjusted EBITDA growth (as described above) and some tailwind |
from working capital management as inventory normalizes following a step-up in 2022 |
(more below), which more than offsets cash separation costs expected to be incurred |
from 2023-2025 (around $595M post-tax) and some step-up in capital expenditures. |
We note that 2022 was a tougher year from a cash flow perspective (FCF conversion |
79% and overall FCF -27% YOY) as the company had a significant working capital |
headwind due to supply chain disruption, inflation, and also building inventory ahead of |
the JNJ separation (safety stock). As we mentioned, we expect inventory normalization |
to be a tailwind to free cash flow ahead, and we model for working capital as a percent |
of sales to decline from 16.8% in 2022 to 13.5% in 2025. |
Figure 48: KVUE Free Cash Flow Outlook |
0% |
20% |
40% |
60% |
80% |
100% |
120% |
$0 |
$500 |
$1,000 |
$1,500 |
$2,000 |
$2,500 |
$3,000 |
2021 2022 2023E 2024E 2025E |
FCF $m (left-axis) FCF % of adj. Net Income (right-axis) |
Source: Company reports and J.P. Morgan estimates. |
Figure 49: KVUE Working Capital Outlook |
17.7% |
13.6% 12.9% |
16.8% |
15.2% |
14.0% 13.5% |
0.0% |
2.0% |
4.0% |
6.0% |
8.0% |
10.0% |
12.0% |
14.0% |
16.0% |
18.0% |
20.0% |
$0 |
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