Ecolab (NYSE: ECL) is a leader in water and sanitation technology in over 170 countries. The company creates systems for water treatment, getting rid of pests, product sanitization and maintenance services.
What the company makes money on
Ecolab divides business into three large divisions: Global Industry, Global Institutional & Specialty, Global Healthcare & Life Sciences. Besides, The company owns a number of brands: Ecolab, Microtek, years, Kay и Bioquell. Management estimates total market at $147 billion, and the share of the company is approximately 8-9%.
Global Industry (GIVE).
Implements water purification and disinfection technologies for light and heavy industry, that save businesses money and solve compliance problems. Key customers are food and beverage manufacturers, chemical, metallurgical, mining and petrochemical products.
Ecolab can adapt to any customer requirement. For heavy industry, the company manufactures wastewater treatment and filtration systems, for food and beverage manufacturers - cleaning and sanitation systems, and for the oil refining and petrochemical industries - water treatment systems for technological processes.
Key Market Information:
- overall volume - 50 billion dollars;
- Ecolab share - 10%, or about 5 billion dollars;
- main markets: North America (70%), Europe (15%), Asian-Pacific area, including China (10%), Latin America (5%);
- Ecolab mid-term growth plan - 6-8%.
Global Institutional & Specialty (GIS).
The division develops specialized cleaners and disinfectants for the food service industry., hotel business, government controlled, education and retail.
Mainly produce disinfectants for washing dishes and floors, room cleaning, various digital monitoring and dosing systems, filters for water, universal hard surface cleaners, degreasers, cleaning equipment and tools.
Key Market Information:
- overall volume - 50 billion dollars;
- Ecolab share - 10%, or about 5 billion dollars;
- main markets: North America (70%), Europe (15%), Asian-Pacific area, including China (10%), Latin America (5%);
- Ecolab mid-term growth plan - 6-8%.
Global Healthcare & Life Sciences (GHLS).
Like the previous division, it sells various cleaners and disinfectants for the healthcare sectors, personal care and pharmaceuticals. Key sales markets are in Europe and North America.
The main products include: hand hygiene products, hard surface disinfection, cleaning tools, digital monitoring systems, electronic dispensers, wipes for equipment, heating and cooling systems for surgical fluids.
Key Market Information:
- overall volume - 27 billion dollars;
- Ecolab share - 5%, or about 1,3 billion dollars;
- main markets: North America (50%), Europe (40%), Asian-Pacific area, including China (10%), Latin America (8%);
- Ecolab mid-term growth plan - 6-8%.
Other.
In addition to the three main divisions, Ecolab has one more additional one - the company attributes income from laundry enterprises to it., pest control companies. Among other things, this segment includes the production and sale of silicon dioxide, which is widely used for polishing silicon wafers in semiconductor, chemical and aerospace industries.
Ecolab sales structure, billion dollars
| GIVE | GIS | GHLS | Other | |
|---|---|---|---|---|
| North America | 0,717 | 0,776 | 0,112 | 0,201 |
| Europe | 0,353 | 0,166 | 0,154 | 0,071 |
| Asian-Pacific area | 0,200 | 0,048 | 0,015 | 0,017 |
| Latin America | 0,141 | 0,035 | — | 0,013 |
| China | 0,103 | 0,033 | 0,002 | 0,019 |
| India, Middle East and Africa (height) | 0,089 | 0,012 | 0,004 | 0,003 |
Ecolab Markets, billion dollars
| The size | share | |
|---|---|---|
| Food and drink | 28 | 9% |
| Grocery service | 26 | 9% |
| heavy industry | 22 | 12% |
| healthcare | 21 | 7% |
| Pulp and paper industry | 10 | 7,5% |
| The property | 8 | 10% |
| Pharmaceutical companies | 7,5 | 6% |
| High Tech | 7 | 7% |
| Government and educational institutions | 6 | 4% |
| Grocery retail | 4,5 | 11% |
| Construction sector | 3,5 | 11% |
| Other sectors | 3,5 | 20% |
Current results and forecasts
Ecolab has shown strong financial results over the past five years. The average earnings are 1.2-1.5 billion dollars of net profit, except for 2020, when the company faced a drop in sales by 20% in the Global Institutional segment & Specialty, because the business of many clients during this period was idle due to anti-covid quarantine restrictions.
In 2021, the situation has changed for the better — management records a gradual recovery in client activity, in the fourth quarter of 2021, this will lead to stronger results:
- Increasing the sales growth rate over 18% quarter to quarter.
- Fourth-quarter net income growth to pick up at double-digit pace from 10 to 20%.
- According to the long-term forecast, in the next few years the market will grow by an average of 6-8%, which will allow to demonstrate the growth of net profit by 15% with operating profitability in the region 20%.
Financial results of the company at the end of the period, billion dollars
| Revenue | EBITDA | Net profit | net debt | |
|---|---|---|---|---|
| 2016 | 13,152 | 2,765 | 1,246 | 6,360 |
| 2017 | 13,835 | 2,911 | 1,505 | 7,111 |
| 2018 | 14,668 | 2,539 | 1,440 | 6,930 |
| 2019 | 12,562 | 2,697 | 1,426 | 6,168 |
| 2020 | 11,790 | 2,264 | 0,967 | 5,426 |
| 9м2021 | 9,368 | 1,838 | 0,829 | 5,054 |
Comparison with competitors
| EV / EBITDA | P / E | Net Debt / EBITDA | |
|---|---|---|---|
| Ecolab | 28,87 | 57,88 | 2,07 |
| Clorox | 30,28 | 47,75 | 3,33 |
| American Water Works | 23,59 | 43,32 | 5,90 |
| Roper Technologies | 25,35 | 45,01 | 3,46 |
| Waters Corporation | 24,25 | 31,75 | 1,14 |
| Essential Utilities | 21,23 | 31,57 | 6,36 |
Arguments for
Growing Markets.
For 25 years, Ecolab's total sales market has increased by more than 8 once. In many ways, such rapid development is due to the fight against climate change., when the UN published the program "Sustainable Development", which called for "development without destruction".
In subsequent years, the demand for this concept has only increased., and now all this has been transformed into a green agenda.
Ecolab Market Size Dynamics, billion dollars
| 1995 | 18 |
| 2000 | 32 |
| 2005 | 39 |
| 2010 | 57 |
| 2015 | 115 |
| 2020 | 135 |
| 2021 | 147 |
18
Water.
One of the main problems 21 centuries — preserving and improving the quality and quantity of water for present and future generations. Ecolab is at the forefront of enterprises, who are struggling with this problem.. The main goal of the company is to save customers' resources, so they can do more with less by reducing their water consumption.
Trends in reducing water consumption by Ecolab customers, billion gallons
| 2015 | 153 |
| 2016 | 161 |
| 2017 | 175 |
| 2018 | 188 |
| 2019 | 206 |
| 2020 | 217 |
| 2030 | 300 |
153
Dividends and buyback.
Ecolab - Dividend Aristocrat, which is more 29 increases its payouts to shareholders. From 2008 to 2020, the company paid an amount of about 10 billion dollars, out of which 4,3 billion dollars came in dividends, and 5,5 billion dollars - by buyback of shares from the market.
Main point of growth.
The company predicts, that the greatest increase in financial results should be expected from cooperation with pharmaceutical manufacturers, since the overall drug market with 2019 on 2027 will almost triple to 909 billion dollars, which may be followed by an average annual growth rate of 14%.
Arguments against
Coronavirus.
The pandemic has not yet completely released the restaurant business and other sensitive sectors of the economy. Although it's fair to say, that the dynamics quarter by quarter only improves.
Evaluation.
The company has high multiples with low growth, which since 2016 has been on the mark 4%. The main reason for this phenomenon is strong PR from Bill Gates and Michael Burry, who actively invest in enterprises, related to water.
What's the bottom line?
Ecolab is an interesting issuer for investment: make money by solving water problems, with which mankind will face especially sharply in the near future, seems like a good idea.
