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Unilever completes 82% acquisition of Glaxow BD, gaining ownership of HFD brands

  • Transfer of 9.88mn shares successfully completed on 30 June, 2020 at BDT2,046/share on the block market
  • HFD brands – Horlicks, Boost and Glaxose BD – will go to Unilever, but GSK will keep Sensodyne and Eno
  • Downgrade Glaxow BD to Sell, cut TP to BDT1,716

Glaxow BD to become Unilever Consumer Care after the transfer of 9.88mn shares. Unilever announced the successful completion of acquiring 81.98% shares of GlaxoSmithKline Bangladesh on 30 June, 2020. Unilever Overseas Holdings BV, a concern of Unilever, took over 9,875,144 shares from Setfirst, a concern of GSK Group, on the block market at Dhaka Stock Exchange on 28th June, 2020. The remaining 18% stake is owned by the general and institutional investors. After this transfer to the Unilever Group, GlaxoSmithKline Bangladesh Limited is going to become Unilever Consumer Care Ltd.

This acquisition of 9.88mn shares was formerly announced on 3 December 2018 at an equity value of BDT16bn (cEUR169m), implying BDT1,620 per share at a premium of 18% against the announcement day market price. But from the time the announcement was made till June this year, market price had increased by c49%. Finally, both the parties decided to complete this acquisition at the prevailing market price (BDT 2,046 per share in floor price mechanism) at an equity value of BDT 20.2bn.

After the transaction has been completed, GlaxoSmithKline group-nominated directors have resigned from the board of the listed company and Unilever-nominated directors have joined to form a new board of directors. Bangladeshi professional Accountant Masud Khan is to continue as chairman of the company, while other new directors are engaged with Unilever Bangladesh Ltd, including the new managing director KSM Minhaj.

Unilever Consumer now owns Glaxow BD’s Health-food drinks (HFD) portfolio but GSK is keeping the minor products. Through the deal and transformation, the listed company with its distinctive HFD brands - Horlicks, Boost and Glaxose BD, has gone under control of Unilever Group. Horlicks is the absolute market leader in the BDT4.1bn health food drinks (HFD) industry attaining 92% market share. The industry still remains significantly under-penetrated with only c11% penetration level.

On the other hand, GSK group will continue to market its premium toothpaste brand ‘Sensodyne’ and over the counter digestive health brand ‘Eno’ with Burroughs Wellcome & Company (Bangladesh) Limited, a non-listed subsidiary of GSK Group. Hence, the listed company will have nothing to do with the business of Sensodyne and Eno. Until the transfer of majority shares, oral products led by Sensodyne brand contributed almost 10% sales of Glaxow BD. And this segment grew by c41% CAGR in past five years. Hence, losing these products will clearly be a negative factor for the Company.

Unilever’s acquisition is likely to alleviate the struggle to grow revenue in HFD segment. Glaxow BD has been struggling to grow sales volume of HFD segment for quite some time now. In past five years, revenue of the Company from HFD segment declined by c4% yoy and the trend continued in the first six months of 2020 with revenue falling by c10% yoy. One of the key factors that reduced HFD products’ appeal to the customers is the emergence of other food options such as milk, cereal etc. which are branded as being fortified with vitamins and minerals, almost like HFD. To add to the woes for HFD industry in Bangladesh, illegal import is still prominent especially near the border areas of the country. Hence it has become challenging for HFD industry in Bangladesh to push past these barriers and grow significantly.

However, we believe Unilever will be able to amplify the growth of HFD industry with the iconic brands they have now. We expect them to use the low penetration level as an opportunity and capitalise on it with their strong distribution capabilities and distribute through various channels of modern trade and expand customer base by penetrating rural market with ‘sachets’. Unilever is likely to invest in marketing activities at the initial stage to revamp the three HFD brands with enhanced product positioning to drive consumer demand. But even then, we think it will be difficult to drive significant growth in top line in the long run with these three brands alone.

Margin is likely to increase in the coming years. As Unilever takes over the majority stake of the Company, margin is expected to expand. Supply chain, logistics, distribution, warehousing – all play as the strengths of Unilever. In addition, Unilever spends multiple times more on media and non-media than Glaxow BD which gives them higher buying power, sophistication and technology. Unilever has greater scale than what Glaxow BD had in almost all dimensions. Therefore, we think the selling and distribution expense will fall significantly by the end of next five years and overall margin will improve.

Downgrade to Sell with lower TP of BDT1,716 from BDT1,794 for Dec 2020 (ETR -17.5%). It implied a downward TP revision by c4%. Although we believe Unilever’s acquisition will help reduce sales growth struggle as well as increase margin, losing Sensodyne that contributed almost 10% to sales and had a high growth trajectory will lower the overall valuation. Based on this, we have trimmed 2020f revenue growth (-10.0% yoy from -5.5% yoy) and earnings growth (-3.7% yoy from 3.6%). Overall, we decreased our EPS estimation from BDT84.8 to BDT78.8 (-7.1%).

Glaxow BD is currently trading at 25.0x trailing PE which is significantly high compared to trailing PE of other consumer stocks as well as multinationals listed on DSE. Our analysis on price comparison of Glaxow BD with other similar stocks are provided in the next pages. We think such high market price is not sustainable as our lower TP of BDT1,794 for December 2020 suggests an ETR of -17.5%. We have a Sell recommendation.


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