Ontex Group: Don't wet yourself

Published on 22 July 2019 at 17:47

Ontex Group is an international producer of personal hygiene solutions in baby, feminine and adult care. Their products are distributed in more than 110 countries through retailer private labels and own brands. Its most important competitor is Pampers.

At a stock price of €13,36 Ontex is currently at less than 12 times earnings, less than 0,6 times sales and less than 1 times book value. These are multiples that Benjamin Graham, the father of value investing, would have liked.

Ontex is now cheaply priced and we see a number of reasons why investors have been pessimistic. Ontex has met with a number of problems the last couple of quarters, including high increase in costs (raw materials), fierce competition (Ontex Group lost some important contracts on the European market to its main competitor Pampers) and a troublesome acquisition (the Brazilian Hypermarcas). The market capitalization of Ontex Group has halved in the last two years.

We also see some signs of an improving context for Ontex, including the signing of a contract with Walmart in the USA and improving sales on most continents (including South-America, Middle-East, Asia, Africa).

Most importantly, thinking of the long term, Ontex is in an interesting market, with a growth in the world population and people getting much older. This means a structural increase in demand for personal hygiene products.

As unintelligent investors, we know that we cannot predict the future of Ontex Group. However, the stock price is now low enough that we see a relatively attractive margin of safety.

Ontex Group stock price (last 5 years):


Disclaimer: as unintelligent investors we are only certain of one thing and that is that we cannot predict the future of stock prices. Under no circumstances this analysis should be seen as an advice or recommendation to buy, hold or sell.

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