Kimberly-Clark to Acquire Softex Indonesia for $1.2 Billion; Buy with Target Price of $180

Kimberly-Clark, an American multinational personal care corporation, said it will acquire leading Indonesian personal care maker Softex Indonesia for $1.2 billion in cash from a group of shareholders including CVC Capital Partners Asia Pacific IV.

The company, which markets diapers, toilet paper, feminine care, facial tissue, paper towels, and other hygiene products to retail consumers, said the deal will improve their currently limited position in Indonesia – where the diaper market is estimated at $1.6 billion – to one with a strong market share in key personal care categories across Southeast Asia’s largest economy.

“Strategically, Softex complements Kimberly-Clark’s (KMB) personal care portfolio, gives it a much-improved competitive position in one of the largest/fastest growing diaper markets globally, and signals a renewed openness to M&A under CEO Hsu. At 19x P/E, we see scope for KMBs shares to re-rate higher. Buy, price target $181,” said Kevin Grundy, equity analyst at Jefferies.

“We reiterate our Buy rating at KMB given: 1) High EPS visibility (conservative guidance), 2) Stronger topline / moderating commodity costs provide an offset to FX, 3) Positive strategic changes afoot, 4) Strong B/S (< 2x pro forma for Softex), and 5) Scope for multiple expansion at 19x NTM P/E. Our $181 price target is based on a 23.5x multiple on 2Q21 NTM ULFCF (~21x P/E vs. ~25.5x core staples avg.),” Grundy added.

The deal is expected to close early in the fourth quarter of 2020 and is subject to customary closing conditions. Morgan Stanley & Co. LLC and Centerview Partners LLC acted as financial advisors, and Gibson Dunn and Crutcher LLP acted as legal counsel to Kimberly-Clark on the transaction, the company said.

Kimberly-Clark’s shares rose 0.16% to $152.50 in post-market trading hours after closing 2.05% lower at 152.2 on Thursday. Meanwhile, the stock is up over 12% so far this year.

Executives’ comments

“This acquisition represents a compelling strategic fit and demonstrates our commitment to accelerate growth in developing and emerging markets,” said Mike Hsu, Chairman and CEO, Kimberly-Clark. “Moreover, adding Softex Indonesia and its brands to Kimberly-Clark will enhance our company’s underlying growth prospects and help us create even more long-term shareholder value.”

“Softex Indonesia has a strong, growing and profitable business with a portfolio of brands loved by Indonesian consumers,” said Aaron Powell, President of Kimberly-Clark’s Asia-Pacific consumer business. “This acquisition provides an opportunity for Kimberly-Clark to accelerate our growth in Southeast Asia, and we look forward to combining our strengths in innovation and brand building to expand on Softex Indonesia’s continued success.”

Kimberly-Clark stock forecast

Nine analysts forecast the average price in 12 months at $159.11 with a high forecast of $181.00 and a low forecast of $139.00. The average price target represents a 4.51% increase from the last price of $152.25. From those nine analysts, four rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $160 with a high of $204 under a bull-case scenario and $99 under the worst-case scenario. RBC raised their price objective on Kimberly-Clark to $156 from $149.

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised their price target to $150 from $147, Citigroup upped their stock price forecast to $139 from $125, JP Morgan increased it to $161 from $158 and Jefferies raised the price objective to $181 from $174.

Analyst view

“We have high near-term visibility on solid results above Kimberly-Clark Corp’s (KMB) FY20 guidance, driven by solid topline trends benefiting from an increase in consumption as a result of the COVID-19 pandemic, and margin upside vs. guidance on commodity benefits and upside to reinvestment guidance,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“However, we see limited long-term organic revenue growth of 1.5%, in-line with KMB’s mid-term +1-3% guidance (lowered from +3-5% in the past) driven by muted category growth with declining birth rates in the US/developed markets, and soft KMB share trends. We view KMB’s 30% CY21 P/E discount vs. higher growth HPC peers (PG/CL/CHD/CLX) as appropriate considering our lower long-term organic sales growth/EPS outlook,” he added.

Upside and Downside risks

Upside: Lower than expected commodity costs (particularly hardwood pulp), higher birth rates drive improved category growth, improving market share trends, greater price realization, and a weakening U.S. dollar – highlighted Morgan Stanley.

Downside: Greater than expected commodity pressure, price promotion drives lower category growth, worsening market share trends, lower KMB price realization, cost-cutting downside, and a strengthening U.S. dollar.

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