Henkel: A Contrarian Gem in EVs and Beauty

The market's current focus on AI and EVs has left little room for older industrial players like Henkel (XTRA:HEN), but this is precisely why the German conglomerate presents a compelling contrarian opportunity. With a P/E ratio of 14x—nearly half the sector average—and a dividend yield of 2.72%, Henkel offers a rare combination of defensive income, margin stability in its beauty division, and underappreciated exposure to structural growth in EV manufacturing. Let's dig into the details.

The Underrated EV Catalyst: AI-Driven Adhesives

Henkel's adhesives division, which accounts for nearly half its sales, is quietly benefiting from the EV revolution. While the company's Q1 sales dipped 1.4% due to consumer-side weakness, its Adhesive Technologies segment grew 1.1% organically. This division is now a key player in EV battery manufacturing, supplying high-strength structural adhesives (up to 12 MPa) that enable lighter, safer battery packs.

What's underappreciated is the role of AI here. At the 2025 Battery Show Europe, Henkel showcased AI-generated virtual adhesives and digital twins that cut development cycles by predicting material behavior without physical prototypes. These tools are now being adopted by OEMs to accelerate EV battery production. Meanwhile, Henkel's Path.Era platform, built on the Catena-X blockchain, provides end-to-end traceability for battery components—a must-have as regulators tighten recycling standards.

Beauty Division: Margin Resilience in a Slump

The consumer brands segment (beauty, home care) saw a 3.5% sales decline in Q1, but here's the catch: Henkel is systematically pruning lower-margin businesses. The sale of its North American Retailer Brands division in early 2025—and plans to focus on high-margin beauty brands like Schwarzkopf and Dial—means margins are stabilizing.

Analysts often overlook this: while top-line growth is sluggish, Henkel's EBIT margins in beauty remain within its 14–15.5% target range. Pricing power (up 2% in Q1) and cost discipline are shielding profitability. The division's portfolio shift is a textbook example of value investing: buying a company that's restructuring to focus on its strongest assets.

Valuation: A Discounted Dividend Machine

Henkel's valuation is a contrarian's dream. Its P/B ratio of 1.31 is near its 10-year low, and its EV/EBITDA of 7.3x is 30% below the global consumer goods sector average of 10.65x. Even peers like Beiersdorf (BEI:FRANKFURT) trade at 3.1x P/B, yet Henkel's adhesives and beauty divisions are just as defensible.

Analysts' average price target of €85.31 implies a 46% upside to the current price of €58.70—a gap that seems too wide to ignore. The company's €1 billion buyback and 10% dividend hike further signal confidence in cash flow stability.

Addressing the Near-Term Concerns

Bearish arguments focus on the Q1 sales drop and input cost pressures. But these are transitory:
1. Consumer Brands: The weakness is concentrated in North America/Europe, where Henkel is already trimming exposure.
2. Adhesives: Growth in Asia-Pacific (up 1.1% organically) suggests demand remains robust in emerging markets.
3. Debt: Net leverage is a manageable 2.8x, and free cash flow remains strong enough to fund R&D in EV tech.

The Bottom Line: A Multi-Year Play

Henkel's valuation discounts its EV and beauty tailwinds while overemphasizing short-term macro headwinds. With a dividend yield above its 10-year average and a buyback in place, this is a stock to accumulate on dips. Investors seeking stability in a volatile market—or exposure to EV supply chains without chasing high-flyers—should view current prices as a buying opportunity.

Recommendation: Accumulate shares at current levels. Target price of €85 implies a 46% return, but even a reversion to its historical P/E average of 21x would push the stock to €82. Risk factors include a prolonged EV battery tech slowdown or further margin pressures in beauty—but both seem unlikely given Henkel's strategic moves.

In a world obsessed with the next big thing, Henkel's undervaluation is a throwback to value investing's golden age. This is a stock to buy when others are fearful.