SIDEWAYS: Well armed against financial weakness

HOLZMINDEN (dpa-AFX) – Well-stocked restaurants, a recovery in travel and people’s love for their pets: things should continue to run smoothly in Symrise. The fragrance, flavor and food additive manufacturer is likely to pass on significantly increased costs to customers. At the same time, the industry is consolidating. Symrise could potentially become a takeover target or merge with a competitor. What’s happening at Symrise, what analysts are saying and what the stock is doing.

THIS IS HAPPENING IN SYMRISE

Thanks to its broad base, the company has weathered the Corona crisis very well. Lower Saxony is now benefiting from the revival of many economic sectors after the coronavirus lockdowns of previous years. Sunscreens and perfumes – especially the high-priced brands sold mainly at airports – are again in greater demand. The consumption of food outside the home drives the sales of corresponding additives, for example for drinks. And pet owners are spending more and more to feed their loved ones.

The Pet Food division, for example, had double-digit growth at the start of the year. Symrise had also significantly expanded the division in recent years through acquisitions, for example in 2019 with the purchase of US protein supplier ADF/IDF. More recently, in early 2022, Dutch egg protein maker Schaffelaarbos made a smaller purchase. The acquisition of Chinese pet food fragrance company Wing Pet Food was recently completed.

This pet food area is part of the Taste, Nutrition & Health division, which also combines the business with flavors for food and beverages, as well as ingredients for medicines and dietary supplements. Here, Symrise also benefits from people’s increased leisure activities and growing out-of-home consumption, which increases the demand for beverage and savory applications.

The second major segment, Scent & Care, is mainly about fragrances and additives for body care products, cosmetics and cleaning products. At the start of the year, it was lagging a bit in terms of growth, and global supply chain woes hadn’t stopped at Symrise either. This is where looking at Q2 development gets exciting.

In the current year, Symrise aims to grow by 5 to 7 percent from its own resources. This excludes acquisitions and currency effects, both of which should provide headwinds to nominal growth. Earnings before interest, taxes, depreciation and amortization (Ebitda) are expected to be around 21 percent in 2022, despite headwinds from rising commodity prices. In the medium term, the company is targeting an operating profit margin of 20 to 23 percent by the end of fiscal 2025.

Heinz-Jürgen Bertram, whose contract runs until the end of 2025, has been responsible for the development of the group for almost 13 years. He led the group out of the global financial crisis and continuously drove growth, including several acquisitions. Investors hold the manager in high regard – the share price has multiplied during his tenure.

Bertram is also likely to continue to support growth with acquisitions, particularly smaller, add-on deals. But the industry is also changing on a larger scale. Last year, flavor specialist IFF completed the purchase of its food additives business from chemical group Dupont. In May 2022, the announcement of the merger between the Swiss Firmenich and the Dutch DSM caused a stir. The new company, with combined sales of more than eleven billion euros, will combine DSM’s biotechnology and nutritional expertise with the Swiss company’s skills in fragrances and flavors. For comparison: Symrise achieved sales of almost four billion euros in 2021.

WHAT THE ANALYSTS SAY

Analyst Thomas Swoboda from French bank Societe Generale (SocGen) sees Symrise as an attractive target or merger partner. IFF, and now Firmenich-DSM, are deeply integrated, global players in food and fragrance, and industry competition is increasingly moving into the life sciences space. This put pressure on the competition to diversify and grow.

Givaudan in particular is likely to focus on larger acquisitions, explains Swoboda. Buying Symrise would make a lot of sense and shouldn’t pose insurmountable hurdles under antitrust law. However, Givaudan currently has quite a lot of debt and it will likely take a year or two before such a deal can be done. Other companies that could lead industry consolidation are Chr. Hansen, Kerry and Novozymes, with Symrise the most sought-after partner.
The SocGen analyst also sees Symrise as attractive. The company should continue to deliver attractive growth, be defensively positioned with its nutrition business in the event of an economic downturn, benefit from its deep backwardation in the face of global supply shortages, and proactively raise sales prices. In this context, the analyst recently upgraded the shares from “hold” to “buy” and raised the price target from 130 to 140 euros.

Charlie Bentley from the Jefferies investment house is also optimistic. With second-quarter data expected on Aug. 2, Symrise is likely to show a high level of pricing that allows it to pass on higher raw material prices to customers. This underpins organic growth in the high single digits and operating margin recovery for the full year 2022.

Overall, analysts are fairly bullish on Symrise. Of the 14 experts recorded by financial news agency dpa-AFX since the first-quarter figures were released, seven recommend buying and seven advise “hold.” None of the experts consider it appropriate to sell the documents. The average target price of €118 is just a little above the current price of around €114.

THAT’S WHAT THE STOCK DOES

Symrise shareholders, who have been spoiled for years, have little reason to be happy this year. The war in Ukraine and worries about recession in the face of high inflation and rising interest rates did not stop in Lower Saxony’s press. Currently, the 2022 is a minus of almost 13 percent on the list price. After all, the shares have held up better than the Dax, which is down nearly 16 percent despite its recent recovery.

At the turn of the year, the shares were still close to their record high of around 130 euros, but by June they had fallen to 94 euros. Since then there has been a recovery.

A look at the stock’s history, however, shows long-term success: Symrise launched in 2006 at a market price of €17.25. After initial gains, the price then fell to around €7 during the global financial crisis in 2008/09. Since then, the paper has basically only known the way up.

There have always been price swings like the one this year. So far they have not been able to stop the long-term uptrend. It would have scratches only in the case of cleaner and more transparent under the range of 90 euros or so.

In terms of market value, Symrise currently weighs €16.6 billion, which means it is in the bottom third of the Dax. Rival Givaudan equals €31 billion, as does IFF./mis/mne/jha/

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