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We have adjusted our estimates ahead of Q2 results. We slightly tweak down our margin assumptions in Planetary Health going forward. We do not consider the changes to be material; our rating is unchanged.
Novozymes Novonesis A/S Class B
Speaker: Ester Baiget, CEO What we learned: . Outlook: Management is confident in its FY25 organic growth target of 5-8% after a strong start to the year. Key drivers include self-help, investments in talents and innovation, being more agile and closer to customers. H2 will be softer than H1 due to tough comps and the exit of Russia. . Current trends: Trends from Q1 continuing into Q2, although note that Q1 had been stronger due to timing effects of household care. Continued momentum on innovation in US household care, seeing a step change in customer reformulation. . Pricing: Confident to get +1% for FY25, 1-2% for the mid-term. Price is one tool, volume is still the most important driver of growth. . Mid-term targets: Novonesis is due to set new mid-term targets with Q2 results in August, expect to accelerate organic growth and see margin expansion. Overall tone: Positive
Summary of Q125 results Q1 organic growth came in at +11%, ahead of consensus at +9.7%. Growth was ahead of expectations in Household Care (12% vs cons of +5.5%), driven by increased penetration and innovation particularly in EM, and timing of orders. Food and Beverage grew +11% (cons +9%) with broad-based growth. Human Health came in below, with strength in supplements but weakness in early life nutrition. In Ag, Energy and Tech, organic growth came in a tad below cons as d-d growth in Energy and Tech was offset by Animal (order timings). EBITDA margins were in line at 38.3%. News Management acknowledged increased macro uncertainty (e.g flagging potential downtrading risks in US household care) but remains confident in the outlook, reiterating guidance for FY25 organic growth of 5-8%. Guidance is still expected to be H1 weighted. Earnings and target price Our 3% upgrade to FY25 EPS reflects an earlier contribution from the Feed Enzymes acquisition (now expected to close in Q2) and lower finance costs, partly offset by FX. Our target is DKK389/share vs DKK388 previously. Investment thesis We are cautious on the longer-term organic growth and premium valuation of Novonesis. We are not yet convinced that the merger will fully address concerns on the sustainability of longer-term growth and revenue synergies could be long dated. 15 questions for management Can you discuss which parts of your portfolio could be more vulnerable/ resilient in an economic downturn? Which parts of your portfolio are more sensitive to a lower oil price?
BNPP Exane View Overall a confident call. Management acknowledged incremental end market headwinds (notably factoring in a weaker outlook in Household care in the US and EIA''s lowered bioethanol outlook) but remain very confident in the FY outlook, emphasising there has been no signs of pre-buying and that the good momentum continues into April. Highlights: QandA . Order patterns: Outlook already assumed a strong H1 including in household care. Not seeing changes in customer order patterns across whole business but watching closely given macro uncertainty. Good momentum in April. . Planetary Health: Ag, Energy and Tech growth expected to be faster than Household care. . Household outlook: FY assumes some softness in H2, timing effects but don''t think this is pre-ordering. Customers are flagging declining consumer confidence and softer demand for rest of the year. Penetration has been a big driver of performance, including in EM . China dairy: saw growth in China, still small (5% of Dairy sales) but driven by penetration and innovation in cheese in a market which is now growing . Human Health: Positioning business to grow ahead of market growth (~6% based on Euromonitor). NSIS exposed across channels and focusing innovation on higher growth categories (women, infant, mental health). US healthcare practitioner channel / science driven recommendations seen as more resilient in macro environment . Food and Bev pipeline: in a really good place in food and bev based on penetration and traction, healthier solutions and clean label, bioprotection. See continued momentum. Russia/Belarus exit -3% for FY and mainly in H2 . Innovation examples: bio-preservation, high protein dairy (enzymes which help with texture) . Q2: ''in a place of comfort'' following strong Q1 and including April. Don''t see any pre-buying . Exposures: NSIS business is reliant; present in 30 markets, global asset footprint, EM traction. In past have seen resilience of offering. Food is...
BNPP Exane View: Q1 organic growth was +11%, ahead of company consensus of +9.7% and likely in line to slightly ahead of buyside expectations. EBITDA margins were in line at 38.3%. FY25 guidance reiterated for 5-8% organic growth (H1 weighted) with company consensus within the range at +6.9%. We think a strong Q1 had been widely expected but looks good enough to warrant a small positive reaction today. Headline figures . Q1 sales: EUR1078m, +1.3% vs cons . Q1 organic growth: +11% vs cons +9.7% (including ~1% of pricing) . Q1 adjusted EBITDA: EUR413m, +1.3% vs cons with a margin of 38.3% vs cons 38.3% Note: All consensus estimates are as per company consensus Top line drivers . Q1 Food and Health Biosolutions organic growth +12% vs cons +10.5% o.w. Food and Beverage Biosolutions organic growth +11% vs cons +9%. Broad based growth led by dairy. o.w. Human Health Biosolutions organic growth +13% vs cons +15.3%. Supplements was strong in N America and Europe, early life nutrition soft. . Q1 Planetary Health Biosolutions organic growth +11% vs cons +8.9% o.w. Agriculture, Energy and Tech organic growth +10% vs cons +10.6%. DD growth in Energy and Tech, growth in Plant but Animal negatively impacted by timing. o.w. Household Care organic growth +12% vs cons +5.5%. Increased penetration and innovation particularly in EM. They flag that growth was supported by timing Bottom line drivers . Q1 adjusted EBITDA: EUR413m, +1.3% vs cons with a margin of 38.3% vs cons 38.3% Other . Net debt: EUR1442m vs EUR1490m at year end, 1.1x net debt/EBITDA . dsm-firmenich Feed Enzymes : Expected to close in Q2 (previously in 2025) . Synergies: 1% contribution to sales Outlook FY25 guidance reiterated: . Organic growth 5-8% vs company consensus of 6.9%. Growth is expected to be volume led with pricing +1%. (Guidance range would be closer to 6-9% excluding exit from certain countries). H1 expected to be stronger than H2 . ''In the current more volatile...
We hosted investor meetings with Novonesis'' CEO Ester Baiget and head of IR Tobias Bjorklund in Paris. Management reiterated its confidence in near term execution and excitement in the longer term growth opportunity from both the core and newer markets. Organic growth in focus 2024 was a strong year with growth in every business except Chinese dairy. Management sees a continuation of those trends in 2025, underpinning its 5-8% organic growth outlook for FY25 and its confidence in an acceleration beyond 2025 (more details to be shared with Q2 results). Innovation in the core: ''silent'' reformulation in food, bioenergy diversification There was plenty investor focus on the innovation pipeline (notably in HMOs for infant nutrition and alternative proteins) but management also emphasised the importance of innovation in the core. Clean label and cost savings (e.g. reducing waste) is driving ''silent'' reformulation in food and beverage. Removal of microplastics is driving demand for brightness innovations in Household care. The diversification in Bioenergy is paying off. Investment to support future growth Novonesis guides to 37-38% EBITDA margins in FY25 with cost synergies and easing inputs balanced with increased investment. Continuous yield productivity can support ~3-4% volume growth but its targeted capex step up (10-12% of sales for next two years) will add capacity to support future growth e.g. in dairy cultures in the US. We have an Underperform rating; shares back to a ~25% premium to specialty peers With shares trading on 29.6x 2025 PE and a high bar on consensus expectations, we see little room to disappoint and we continue to have concerns on the sustainability of longer term growth. That said, we expect near term delivery to be robust.
Summary of Q424 results Q4 organic growth came in at +7% (of which 5% volume, 2% price) and in line with consensus of +7.2%. Growth was ahead of expectations in Household care but light elsewhere. H2 adj PF EBITDA of EUR738m was -1% below consensus with margins of 36.8% vs consensus of 37.1%. News For FY25, Novonesis expects organic growth to be 5-8% with both divisions growing within the range. Growth is expected to be led by volume, with ~1% pricing and revenue synergies contributing 1%. EBITDA margins are expected to be between 37-38% driven by stronger gross margin and full year impact of cost synergies (at 80% run rate). Earnings and target price We nudge up FY25 EBITDA estimates by 1% and raise our FY26 estimates by 5% reflecting the Feed Enzymes Alliance acquisition. Investment thesis We are cautious on the longer-term organic growth and premium valuation of Novonesis. We are not yet convinced that the merger will fully address concerns on the sustainability of longer-term growth, and revenue synergies could be long dated. 15 questions for management Management expects a ~1% revenue contribution from revenue synergies in FY25, mainly in Food and Beverages, Human Health and Ag, Energy and Tech. Can you share some examples?
BNPP Exane View: The share price reaction (+5% at time of writing) feels a bit generous for the in line print and guide but we have to admit that management answered the QandA well, with a confident message on 2025 and the innovation pipeline. Highlights: QandA . Revenue synergies: seeing pull for solutions from customers from day 1. Seeing nice momentum in RandD for new product development eg in Human health building strain to solution capabilities - launched 100 customised products in 2024, will continue to scale up. Eg pushing legacy Chr Hansen Plant solutions . Phasing: Seeing a good start of the year so far across all areas. Will gradually increase investments over 2025 so profitability will be stronger in H1 . Inputs: Expect an improvement in gross profit with lower input costs including energy (-5% y/y). Electricity hedged 85% for 2025 in Europe or 25% globally. . Quarterly disclosure: In 2025 will disclose quarterly financial statements incl profitability . Household care pricing: Q4 24 pricing was stronger than group . Dairy upselling: Expect to continue in 2025, has been driven by a range of innovations including protection but also productivity improvement for customers and new innovations. Cheese DBS solutions penetration at 2/3 . Pricing: Across the board and all segments in 2025 . Capex: Investing in production capacity in a multi-year capex programme . HMO in China: Not including significant sales in China in the 2025 outlook to avoid speculating on dynamic regulatory process. Actively engaged and see positive market demand and customer pull . HMO: seeing strong dd growth in HMOs over 2-3 years on a stacked basis. Don''t expect a meaningful contribution to growth in 2025 excluding China . Tariffs: have demonstrated robustness of portfolio and diversification of footprint. In US have 20 sites and confident to be a partner of growth for customers . Sugar reduction: A big theme for customers esp bakery and dairy. Dairy also...
BNPP Exane View: An in line print with Q4 organic growth +7% (cons +7.2%) and EBITDA -1% vs cons. For FY25 management guides to an organic growth range of 5-8% (cons +7%) and EBITDA margin of 37-38% (cons 37.6%). The EUR100m buyback is a surprise but small. Overall we would expect a relatively neutral reaction. Headline figures . Q4 sales: EUR981m, -1% vs cons . Q4 organic growth: +7% vs cons +7.2% (of which volumes 5%) . FY adjusted EBITDA: EUR1423m, -1% vs cons with a margin of 36.1% vs cons 36.2% . FY24 adj EPS ex PPA : EUR1.73, +2% vs cons Top line drivers . Q4 Food and Health Biosolutions organic growth +7% vs cons +9.2% o.w. Food and Beverage Biosolutions organic growth +6% vs cons +7.9% o.w. Human Health Biosolutions organic growth +10% vs cons +12.9% Growth driven by Dairy and Plant based solutions in Food and Bev. In Human Health, growth was supported by positive development in supplements . Q4 Planetary Health Biosolutions organic growth +7% vs cons +5.7% o.w. Agriculture, Energy and Tech organic growth +6% vs cons +7.1% o.w. Household Care organic growth +8% vs cons +2.9% Growth driven by Ag and solid growth in Energy Bottom line drivers . H2 Food and Health Biosolutions adjusted EBITDA: EUR325m, -1.2% vs BNPPEe with a margin of 36.3% vs BNPPEe 36% . H2 Planetary Health Biosolutions adjusted EBITDA EUR412m, +0.2% vs BNPPEe with a margin of 37.3% vs BNPPEe 37.2% Other . Buyback: EUR100m buyback announced for 2025 . Net debt: 1.4x at year end . FCF: EUR667.5m, up y/y from EUR459.2m Outlook For 2025, Novonesis expects: . Organic growth 5-8% vs company consensus of 7%. Growth is expected to be volume led with pricing +1%. (Guidance range would be closer to 6-9% excluding exit from certain countries). H1 expected to be stronger than H2 . Revenue synergies expected to contribute 1% to growth mainly in Food and Bev, Human Health, Ag, Energy and Tech . EBITDA margin 37-38% vs current company consensus of 37.6% (recall the existing mid-term...
BNPP Exane View Management emphasised that Novonesis is the ''natural owner'' of the Feed Alliance. The comments on synergies were somewhat vague but management believes that having direct-to-market access will allow for better cross selling across enzymes and probiotics, supporting their continued confidence in LT growth. Highlights: QandA . ROIC: Intend to re-introduce a ROIC target with LT plan with H1 figures. Do expect deal to be accretive to ROIC . Growth: Market growth MSD CAGR driven by protein demand and other drivers. Expect to add a further LSD CAGR. Growth was a bit less historically . Employees: Expect around 100 people to be transferred. Will hire to accelerate growth but do have employees already in this field. . Valuation of deal: Value to bring the deal home, believe Novonesis is the natural owner . Financials: Was a profit-sharing alliance not a traditional JV. dsm-firmenich was previously operating the go-to-market. Novonesis was already booking sales to dsm-firmenich; previously booking EUR180m of the EUR300m (referred in the dsm-firmenich release), so Novonesis is acquiring an incremental EUR120m) . Synergies: 1. Near term - cross selling across enzymes and probiotics 2. Strengthen geog. footprint 3. Innovation synergies - putting products together, will be more LT as involves RandD . Geographic footprint: Alliance is strong in Europe, APAC and LatAm. Novonesis probiotics is biggest in US market . Cost synergies: Some scope efficiencies but main driver is growth synergies . dsm-firmenich: will remain a significant strategic customer in premix . Mid-term growth: Feel confident on growth of the LT company, acquisition gives Novonesis the right to drive growth synergies Highlights: prepared remarks . Feed Alliance: Complementary capabilities - Novonesis was responsible for RandD and production, dsm-firmenich facilitated go-to-market. Novonesis will now drive full value chain. . Direct go-to-market: Was previously limited on...
What happened? dsm-firmenich and Novonesis have announced that Novonesis will acquire dsm-firmenich''s share in the Feed Enzyme Alliance as part of dsm-firmenich''s overall plan to exit its Animal Nutrition business. The Alliance was established over 25 years ago whereby dsm-firmenich sold and distributed enzymes produced by Novonesis. The deal is valued at EUR1.5bn (or EUR1.4bn net) and from a Novonesis perspective will contribute an incremental EUR120m revenues and EUR70m EBITDA from year one, implying a valuation of 21.5x EV/EBITDA. Rationale for dsm-firmenich: This divestment is part of its wider plan to exit Animal Nutrition (ANH). They will retain a LT commercial relationship with its remaining premix business within ANH. Rationale for Novonesis: According to management, the vertical integration within Animal will help Novonesis to serve existing and new customers with strong insights into core markets and unleash further innovation. The deal is expected to be LSD EPS accretive in year one and MSD by year 3. BNPP Exane View: From a dsm-firmenich perspective: we see this as a strong positive step in the planned exit of its Animal Nutrition business. We value the whole ANH business at EUR4.1bn. The Feed Alliance would be just a share of the Performance Solutions business (EUR300m revenue out of the EUR1200m, we don''t have their share of recognised EBITDA) so a EUR1.5bn / 21.5x valuation looks attractive in our view. In the release management confirms that they remain on track with the exit plan for the rest of ANH - the process of seeking transaction options for the rest of ANH will begin next week and is still expected to be announced in the course of 2025. Our SOTP valuation for ANH: / For further details see our note DSM-FIRMENICH: Getting to the core of the matter: Upgrade to Outperform From a Novonesis perspective: This transaction comes as a surprise but we see the strategic logic as Novonesis would have faced some uncertainty if...
NZYMB NSISB DSFIR
Educational spotlight session on Energy Novonesis hosted a spotlight event on its Energy division with Tina Sejersgaard Fanø (EVP Planetary Health Biosolutions) and Hans Ole Klingenberg (VP Energy Marketing). This was primarily an educational event to shed some light on one of its most complex sub-divisions which accounts for ~18% of sales. Management emphasised that it has successfully decoupled from 1G US ethanol production volumes thanks to diversification and will continue to further diversify across geographies and in newer areas such as sustainable aviation fuel over the longer term. Whilst the content was very interesting, there was no new financial disclosure or quantification of growth drivers which remains a key talking point amongst investors. QandA highlights . E15: US Congress is proposing E15 all year round. This would be supportive for demand for liquid biofuels but don''t expect a huge change for 2025 as i) needs to be approved and ii) will be a gradual roll out . Biomass (2G): Still a small share of the Novonesis portfolio. Roughly 10x enzyme usage per gallon for 2G vs 1G but can vary. Biggest customer in Brazil but also some customers in India and Europe, China . Biodiesel: Novonesis has been in the market for over 10 years, reference plants now in the 10s which is reaching critical mass. Compared to chemical processes, enzymes require -30% lower capex and opex, more feedstock flexibility and less waste . Energy division outperformance: Novonesis has put focus on diversification journey which has gained traction. Expect another good year in 2025, expect to outgrow underlying ethanol markets. . Market share: market leader across geogs and technologies including products supporting side streams . Sales model: would be engaging with customers before new capacity is built. Teams would support start up and offer regular technical support. Contracts can vary from spot to annual to longer term contracts . Innovation: typically...
Summary of Q324 results Q3 organic growth came in at +11% (of which ~9% volume, ~2% price) ahead of consensus of +8.9%. Growth was broad based with both divisions growing ahead of expectations. Food and Health Biosolutions organic growth was +11% (cons +9.4%) with both Food and Human Health growing at a similar rate. Planetary Health organic growth was +12% (cons +8.5%) driven by Ag, Energy and Tech and Household care. News Management now expects FY24 organic growth to be in the upper end of the 7-8% range, with both divisions growing within this range. EBITDA margins are still expected to be between 35.5-36.5%. Earnings and target price We tweak up estimates on organic growth. Our target price is DKK364 per share vs DKK360 previously. Investment thesis We are cautious on the longer term organic growth and premium valuation of Novonesis. We are not yet convinced that the merger will fully address concerns on the sustainability of longer term growth and revenue synergies could be long dated. 15 questions for management How could Novonesis be impacted by potential policy changes under the Trump administration (e.g. around E15 or IRA policies in Bioenergy)?
We recently hosted investor meetings with Novonesis management in London following Q2 results. In attendance were Ester Baiget (CEO), Rainer Lehmann (CFO), Jacob Vishof Paulsen (EVP Food and Beverage Biosolutions), Amy Byrick (EVP Human Health Biosolutions) and the IR team. Merger integration progressing well, prioritisation in focus Management is pleased with progress on the integration; employee engagement levels remain high and involuntary workforce attrition is low. The company still expects margin expansion in H2 and 2025 (reiterating the target for ~37% EBITDA margins in 2025) driven by cost synergies and lower inputs. Looking ahead, Novonesis will balance near term profitability with investment for the long term and is currently running a strategic review to identify priority investment areas. Unrivalled expertise in biosolutions, revenue synergies key to driving growth acceleration Management expects revenue synergies to contribute from 2025, with an early pull from customers in areas such as food and bev (cheese, plant based) and human health. The revenue synergy ramp up will be key to accelerating growth beyond its existing mid-term target of 6-8% which offers limited upside vs the growth targets of the two legacy businesses. Management remains confident in its innovation pipeline, including in alternative proteins despite the recent delay with its anchor customer. Whilst we believe the merger creates a player with unrivalled biosolutions expertise, we think that meaningful revenue synergies will be long dated given the limited end market overlap and the long innovation timelines (and oftentimes regulatory hurdles) in biosolutions. We have an Underperform rating, shares trading at a 20% premium to peers It is fair to say that Novonesis has progressed well on integration and near-term execution. However we remain cautious on the sustainability of longer term organic growth given its exposure to mature end markets and the long dated...
Summary of Q224 results Q2 organic growth came in at +10% (of which 8% volume, 2% price) ahead of consensus of +9.2%. Planetary Health Biosolutions delivered +11% organic growth and Food and Health Biosolutions grew +9%. H1 adjusted EBITDA of EUR686m was 1% ahead of consensus with margins of 35.3% vs consensus of 35.1%. Vs our expectations, Planetary Health margins beat whilst Food and Health margins missed. News Management upgraded its outlook again, guiding to 7-8% organic growth vs ~7% previously. Both divisions are expected to grow within this new range. FY24 adjusted EBITDA margins are expected to be 35.5-36.5% vs 35-36% previously. Management flagged ''strong momentum'' going into H2. Earnings and target price We tweak our EBITDA estimates up by 1% reflecting new guidance. The upgrade to FY24 adjusted EPS reflect changes to our assumed adjusted tax rate. Our target price remains at DKK360 per share. Investment thesis We are cautious on the longer term organic growth and premium valuation of Novonesis. We are not yet convinced that the merger will fully address concerns on the sustainability of longer term growth and revenue synergies could be long dated. 15 questions for management What is the outlook for APS revenues given delays in the alternative protein market? When do you expect to achieve your sales ambition of EUR130m / DKK1bn? Can you give more colour on the change in contract terms with your anchor customer and progress with other customers?
Capital Markets Day on 18th June This will be Novonesis'' first CMD since the merger in late January. The event will focus on integration, synergies, financials and the power of the combined technology platform. Expect some colour on growth drivers beyond 2025 We expect a focus on key growth drivers as Novonesis has strongly hinted that the combination should accelerate growth on a longer term time horizon. Management has not committed to providing new mid-term targets (beyond 2025) although we view this as necessary to justify the merger rationale as the existing targets only offer marginal upside compared to previous standalone targets. Mainly an educational event, unlikely to drive upgrades. We remain below consensus We suspect there may be limited new financial disclosure; management has committed to providing further PF detail with H1 (28th August). At this early stage, we don''t see the CMD as a catalyst for upgrades. Consensus is already giving them benefit of the doubt on a sustained superior organic growth rate of ~7% to 2028 (within its existing target of 6-8% but above 10-year historic PF growth of 6%) and 100bps of EBITDA margin expansion by 2028, beyond its 2025 target of ~37%. Synergy update: cost side progressing well, we expect revenue synergies to be long dated Management targets EUR160-180m of EBIT synergies, of which ~50% are related to costs and ~50% to revenues. Management may upgrade/pull forward its cost synergies which are progressing well. However, we still believe revenue synergies will be long dated given the limited portfolio overlap. Shares already trading at a premium to specialty peers; reiterate Underperform We stick to our Underperform rating as we are cautious on the sustainability of Novonesis'' LT organic growth outlook given its exposure to mature end markets and our view that revenue synergies could be long dated. Shares are trading on 31x 2025 PE, at a 20% premium to Specialty Ingredients peers.
Summary of Q124 results Q1 organic growth came in at +4% (of which 2% volume, 2% price), in line with consensus. Reported sales of EUR966m were -2% below expectations. Food and Health Biosolutions organic growth of +3% was below expectations due to weakness in Human Health, however Planetary Health Biosolutions organic growth of +5% was ahead driven by Household care. News Management reiterated its guidance for FY24 organic growth of 5-7% with M to HSD growth in Food and Health Biosolutions and MSD growth in Planetary Health Biosolutions. FY24 adjusted EBITDA margins are expected to be ~35%. On the call, management indicated that profits will be slightly H2 weighted. Earnings and target price We marginally tweak down estimates on FX. Our target price of DKK350 per share is unchanged. Investment thesis We are cautious on the longer term organic growth and premium valuation of Novonesis. We are not yet convinced that the merger will fully address concerns on the sustainability of longer term growth and revenue synergies could be long dated. 15 questions for management Your FY24 guidance assumes an acceleration in Human Health through the year following a soft Q1. What are the key drivers of improvement? To what extent is this driven by improving market dynamics vs timing of customer orders vs innovation and penetration?
Novozymes reported estimate-beating Q3 23 numbers, underpinned by continuing momentum in BioEnergy as well as a strong recovery in the key consumer-facing businesses. The weakness in the textile and grain processing segments and still persistent destocking headwinds across multiple business areas remain the swing factors with respect to the FY23 outlook. We do not expect significant revisions to our estimates.
Summary of Q323 results Q3 organic growth came in at +8% (of which 3% volume, 5% price) and ahead of consensus of +5.8%. The topline beat was led by Bioenergy although Household Care was also ahead whilst Grain and Tech and Ag and Animal missed. Gross margins were flat y/y however EBIT margins bsi improved by 160bps to 26.6% driving a+ 6% EBIT beat vs consensus. News Management reiterated its guidance for FY23 organic growth of 4-6% and EBIT margins bsi 25-26% however lowered FCF guidance to DKK1.8-2.2bn from DKK1.8-2.4bn previously mainly reflecting merger related special items. The merger remains on track to close in Q4 23/Q1 24. They are now awaiting antitrust approval in the EU and S Korea. Earnings and target price We tweak up FY23 Adj. EPS by 5% mainly driven by the lower interest and tax expenses but partly offset by FX. We lower our target price to DKK303/share vs DKK322 reflecting lower mid term assumptions. Investment thesis We are cautious on the longer term organic growth and premium valuation of both standalone Novozymes and of NewCo (merger with Chr Hansen). We are not yet convinced that the deal will fully address concerns on the sustainability of longer term growth and revenue synergies could be long dated. 15 questions for management You had previously identified Bioenergy as a segment with a ''below corporate average'' growth outlook over the mid term - has your view changed given the positive momentum in the newer areas (biodiesel, 2G)? How could the IRA and other policies supporting biofuels impact longer term Bioenergy growth?
Novozymes reported disappointing Q2 2023 results, with a 2% decline in revenue and a 4.2% drop in EBIT. The growth was driven by a positive performance in the BioEnergy segment, which was partly offset by the weakness in other areas. The downward revision to the FY2023 top-line outlook reflects the demand challenges and end-consumer trends. Although the BioEnergy momentum was something of a silver lining, the company may find it difficult to meet even its lowered targets, with little evidence of an improvement in customer volumes.
Summary of Q223 results Novozymes missed on both top and bottom line with Q2 organic growth of +2% (co cons +3.6%) with ~+6% pricing. All divisions missed on organic growth except for Bioenergy (+26% vs cons +17%). Household Care organic growth was flat, Food, Beverages and Human Health -3%, Ag, Animal Health and Nutrition -7% and Grain and Tech Processing -14%. Adj EBIT of DKK1011m missed consensus by -7% with margins of 24.0% vs consensus of 24.8%, declining -200bps sequentially despite a +130bps improvement in gross margin. News Novozymes lowered the FY23 organic growth guidance range to 4-6% from 4-7% previously. This implies an acceleration in H2 vs 3% in H1 against easier comps but also assuming a ''levelling-off'' of consumer destocking headwinds. Earnings and target price We make changes to our estimates to reflect learnings from the Q2 release and recent moves in FX. Our target price remains unchanged at DKK322/share. Investment thesis We are cautious on the longer term organic growth outlook and premium valuation of both standalone Novozymes and of NewCo (merger with Chr Hansen). We also expect the uncertainty of the pending merger transaction to remain an overhang on shares with the deal not expected to close until Q4 23/Q1 24. 15 questions for management Novozymes only started to call out destocking headwinds in the guidance from Q2. Why do you think you were impacted by destocking several quarters later than ingredients peers who first flagged destocking in late 2022? What gives you confidence that destocking headwinds will ''level-off'' in H2?
Novozymes reported Q1 23 revenue growth of 5% to DKK 4.62bn, driven by strong momentum in BioEnergy and ‘Agriculture, animal health & nutrition’. Although ahead of the consensus, the numbers missed AV’s estimates. The adjusted EBIT was DKK 1.2bn with a margin of 26%. The FY23 outlook targeting 4-7% of top-line growth and an adjusted EBIT margin of 25-26% was reiterated. We expect no significant changes in our estimates.
Q1 organic growth led by pricing and favourable timing of orders Novozymes reported Q1 23 organic growth of 5% ahead company consensus of 3.3%, driven by pricing. Organic growth in Bioenergy and Ag and Animal came in well ahead of expectations (in part due to timing of orders), whilst Food, Beverages and Human Health and Grain and Tech missed. Adjusted EBIT excluding one offs was broadly in line with consensus with margins of 25%, -210bps y/y but +160bps q/q reflecting still elevated input and logistics costs. We make only small tweaks to estimates Despite the organic growth beat, management sounded more muted on Q2 given the order timing benefits in Q1 and ongoing supply chain constraints in Human Health. Management reiterated guidance for 4-7% organic growth for FY23, with consensus within the range at 5.2% and vs our 5.6%. Pricing coming through but input inflation still a drag Novozymes still expects over half of the growth this year to come from pricing. As we have written in the past, it is good to finally see a positive impact from price initiatives after years of 1-2% price deflation. However we note this will not fully offset input inflation with gross margins expected to be flat y/y but still down 310bps from 2021, despite a focus on ''value based'' strategic price initiatives. Limited positive catalysts in the near term and little room for error, stay Underperform With volume growth more likely back end loaded and input costs still elevated due to the impact of hedges, we see limited catalysts for earnings upgrades in the shorter term. In any case we also expect the uncertainty of the pending merger transaction to remain an overhang on shares. Referring back to Danish doubts, we remain cautious on the transaction itself as we are not convinced that the deal will fully address longer term growth concerns on both Novozymes and Chr Hansen and synergies could be long dated. Shares are trading on a PF valuation of 17.6x 2024 EV/EBITDA, at...
Novozymes reported mixed Q4 22 earnings, as the top-line beat was offset by an earnings miss. Organic growth of 11% was attributable to broad-based growth even as profitability missed expectations on account of raw material headwinds. Importantly, growth in Household and Food, Beverages & Human Health bounced back strongly. FY23 revenue growth is expected to come in at 4-7% with the adjusted EBIT margin at 25-26%. We will trim our estimates, to factor in the softer than expected margin guidance.
Mixed Q4: better growth but weaker margins and cash flow Novozymes reported Q4 organic growth of 11% ahead of consensus of 9%. However EBIT missed by 6% due to weaker gross margins and FCF came in lower than expected due to negative working capital and additional costs related to the Chr Hansen merger. Pricing initiatives stepping up, although still playing catch up with inputs For FY23 management expects 4-7% organic growth, with pricing contributing to over half of the growth but starting with a ''modest'' Q1 bearing in mind tough comps. EBIT margins are expected to be 25-26% vs underlying margins of 26.4% in FY22 assuming a lagged impact from input cost inflation in part due to hedges. We nudge up FY23 organic growth to 5% vs 3.7% but lower EPS by 6% driven by FX headwinds and higher tax and net interest. A lot to keep management busy in 2023 Management will have a lot on their plate in 2023, navigating macro volatility whilst making progress towards the Chr Hansen merger. With Novozymes'' current management (CEO and CFO) appointed to run NewCo, all eyes will be on management to demonstrate progress on its own self-help journey as the company has just started to rebuild its track record after many years of disappointing growth. Merger with Chr Hansen: a complex deal at a premium price Prior to the deal, we were cautious on the standalone investment cases for both Novozymes and Chr Hansen on LT organic growth risks (we are below mid term targets for both) and their premium valuation to peers. As discussed in our recent note Danish doubts, we are not convinced that the deal will fully address those growth concerns or that it creates more value than could have been achieved standalone. Shares are trading on a PF valuation of 18x 2023 EV/EBITDA, still one of the highest in the sector. With a long lead time on the merger (closing expected Q4 23/Q1 24), concerns around deal execution and integration will likely weigh on shares over the next...
Merging to create a global leader in biosolutions Novozymes and Chr Hansen announced the intention to merge in December, to create a biosolutions leader with pro forma revenues of EUR3.5bn and EBIT of EUR900m. Management believes the combination will ''unleash the full potential of biological solutions'' with more diversified exposures which will help to ''de-risk'' the longer term organic growth outlook and innovation pipeline and will be even better equipped to address sustainability challenges. A complex deal at a premium price, with limited accretion (4% to ROCE) There is no debate that both Novozymes and Chr Hansen are individually strong players in the biosolutions space. However we are sceptical that this deal will create more value than could be achieved standalone bearing in mind the complexity of the transaction and the lack of past experience in large scale MandA. The pro forma mid term targets of 6-8% organic growth and 29% EBIT margins do not offer upside to the sum of existing standalone targets. Value of synergies fully transferred to Chr Hansen shareholders The initial deal terms implied that Chr Hansen shareholders receive a blended 38% premium to the undisturbed share price or an absolute value of ~EUR3bn. We estimate the NPV of synergies to be worth ~EUR2bn which suggests that more than 100% of the synergy value is transferred to Hansen holders. Both stocks have since derated (perf now linked by the exchange ratio) reflecting profit taking from Hansen holders and disappointment on the deal terms from Novozymes holders. We reiterate our Underperform rating on Novozymes, Chr Hansen back to Underperform Prior to the deal we were negative on the standalone investment cases for both Novozymes and Chr Hansen on LT organic growth risks and their premium valuation to peers. We are not convinced that this deal will fully address those growth concerns and PF valuation of 18x 2023 EV/EBITDA remains one of the highest in the sector....
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Novozymes and Chr. Hansen have entered into a €25bn merger agreement to create a bio solutions major with annual revenues of €3.5 billion, expected to grow at a CAGR of 6-8% with an EBIT margin expected to reach 29% by 2025. Although we see the strategic merits, this comes across as an expensive deal. No wonder that Novozymes stock price is down by ~13.6% since the announcement while Chr. Hansen stock price is up ~21%, as of pixel time.
Novozymes reported Q3 22 numbers in-line with the preliminary headline numbers released last month. Q3 sales were up 6% with the EBIT margin at 29.5%. The firm re-iterated it FY22 outlook (8-9% top-line growth and a 30% EBIT margin), which had been upgraded during the preliminary announcement. We do not expect any significant changes to our estimates, as the optimism from the strong Q3 will be offset by the implied weakness in margins.
No surprises on Q3 after the recent pre-announcement There was not a lot of incremental news in Novozymes'' Q3 release following the recent preannouncement. Management confirmed Q4 has started well, reaffirming its recently upgraded FY22 organic growth guidance range of 8-9% and EBIT margin range of 26-27% (we and consensus are already within the range). However they also lowered FCF guidance by DKK400m to DKK1.3-1.7bn due to phasing of the Alternative Proteins capex investment. We nudge estimates up mainly on FX and marginally on pricing. We forecast organic growth of 8.7% in 2022 and 3.8% in 2023. Input costs and pricing stepping up in 2023 Despite initial pricing efforts, Novozymes expects 250bp gross margin compression to 55% in 2022 due to input cost inflation. They do expect pricing to step up sequentially and have now confirmed more than two thirds of the price increases planned for 2023. These efforts should keep EBIT margins at or above its stated ''floor'' of 25%. This compares to an underlying margin of 26% in 2022 and suggests that they will not be able to fully recoup 2022/23 input inflation by the end of 2023 (assuming no significant change in operating costs this guidance implies a gross margin of c55%). All the good news for H2 well known, little room for error into FY23 against tougher macro We recently downgraded Novozymes to Underperform as the good news on current topline strength now seems to be well understood. Shares are at a 35% premium to Ingredients peers which looks vulnerable in our view for organic growth in 2023 in line with peers. We see little room for error into 2023 against a backdrop of macro uncertainty, rising interest rates, moderating commodity prices and destocking risk (and a tough comp). If we could ask one question (more inside) Can you discuss what you have done to secure two thirds of price increases for 2023? Does it mean you have negotiated increases for two thirds of your volumes/contracts? Or...
Reducing forecasts: Following weaker than expected H119A numbers, we pull back our FY19E FD EPS 2.6% to DKK11.12 from a 2.2% reduction in both EBIT to DKK4094m and revenue to DKK14.61bn. Note that the FY19E downgrade is mitigated by an unexpected DKK455m in “other operating income” reported in Q219A attributed to a recognition of deferred income and divestment of a pharma-related royalty. Without this contribution, we would have pulled back our FY19E FD EPS by c.16% EPS. Innovation yet to deliver: Novozymes prefers to grow organically, developing enzyme systems and processes in-house to drive revenue and earnings growth. As such, the market has been waiting for the much heralded Freshness platform to start delivering as a global innovative offering. However, we believe that it remains in powder rather than liquid format and geographic expansion is only into developing markets. Combined with pressure in core businesses such as starch and baking, we believe Novozymes is finding it difficult to deliver growth. Risk is to the downside: Novozymes is trading at 26.2x FY19E P/E and 15.9x EV/EBITDA, a 12.4% discount to its peers. In our H119 preview we noted that in a range-bound stock, disappointing results had tested support at DKK300. Continued LFL revenue and EBIT margin decline has now seen the price break through that support level. That said, on our revised forecasts and terminal growth rate (down to 4.0% from 4.2%) our DCF-derived PT only falls to DKK310 from DKK325, implying a FTR of 8.4%. While that supports our unchanged Hold recommendation, we would caution that we believe the risk is to the downside.
Revenue weak but margins strong Novozymes issued mixed Q219 numbers this morning (enumerated on Table 1 overleaf) reporting a 17.7% increase in FD EPS to DKK3.12 (INVe DKK2.78) from a 24.2% increase in EBIT to DKK1189m (INVe DKK1016m) despite a 1.1% decrease in revenue to DKK3458m (INVe at DKK3686m). A LFL revenue decline of 2.0% (INVe +3.6%) was somewhat balanced by a 0.9% FX tailwind (INVe 2.3%). In its Q119 IMS, management kept margin guidance unchanged at between 28% and 29% but tweaked sales growth guidance from a 3-6% range to a 3-5% range. This guidance has now been further reduced to organic sales growth of 1-3% augmented by a 0.5-1.0% addition from FX giving reported revenue growth of 1.5% to 4.0%. EBIT margin guidance was retained at 28-29%, as was net profit growth in the 3-8% range. All division reported LFL revenue declines Every division reported a LFL revenue decline in the quarter which was unexpected. Household Care reported a 1.0% LFL revenue decline. A 1.4% FX tailwind resulted in reported revenue growth of 0.4% to DKK1122m (INVe DKK1140m). A 3.0% revenue decline in Food & Beverages was somewhat mitigated by a 1.6% FX tailwind tempering the reported revenue decline to 1.4% to DKK1028m (INVe DKK1118m). In Bioenergy, while organic revenue declined by 1.0%, a 4.0% FX tailwind saw reported revenue increase by 3.0% to DKK716m (INVe DKK776m). The Agriculture & Feed division reported a LFL revenue decline of 7.0% (INVe -1.0%) which was further impacted by a 1.4% FX headwind resulting in an 8.4% decline in reported revenue to DKK404m (INVe DKK440m). The Technical & Pharma division reported a 6.5% decrease in revenue in the quarter to DKK188m (INVe DKK211m) comprising a 2.0% LFL revenue decline and 4.5% FX tailwind. All to do in H2 Weakness in Household Care (32.4% of H119 revenue) was attributed to challenges in the Middle East due to “economic distress” in some markets, while in Food and Beverages (29.7% of H119 revenue), weakness was attributed to poor sales in baking (Middle East again flagged) and baking price adjustments in North America. Starch sales “stabilized” in Q219. Coming into the H119 results, the market was expecting a 2.6% increase in net income from a similar increase in reported revenue, with an EBIT margin of 28.0% (source: Bloomberg) (we had net income 2.2%; revenue 3.8%; EBIT margin 28.0%). With revenue expectations reduced, if guidance is to be incorporated into forecasts, a marked expansion of margins in H219 is required. We are having to believe that H1 weakness will be made up in H2 strength, which might be hard to accept at face value, potentially leading to price weakness.
Forecasts tweaked on FX movements: Having published revised numbers in late April (A quarter of challenges), and with little change in the markets the company operates in over the interim period, we only adjust our numbers on FX movements coming into Novozymes’ H119A results, which are due on 8 August. This results in a 0.2% increase in our FY19E FD EPS to DKK11.41 from a 0.1% uplift in forecast revenue to DKK14.94bn. Divisions facing challenges: In its Q119A results release, the company noted continuing challenges in the Middle East, a decline in baking and starch enzyme sales, lower bioethanol production, floods in Midwest US and lower feed enzyme sales as factors impacting the business. While we presume that the flood impact has abated, we believe the other factors will have continued to impact performance through H219. As such, we forecast the company will report a 4.9% increase in Q219E FD EPS to DKK2.78 on a 6.2% increase in EBIT to DKK1016m and 5.4% increase in revenue to DKK3686m. At fair value: Novozymes is trading at 27.6x FY19E P/E and 17.7x EV/EBITDA, what we consider to be a justified 6.0% discount to its peers. We continue to value the company on a DCF basis and, given the marginal nature of our forecast changes, our PT remains unchanged at DKK325. The share price has been largely range-bound between DKK300 and DKK325 over the past six months, with little sign of a catalyst to break through resistance and disappointing results testing support. Without the catalyst of acquisitions (the company prefers to grow organically), other than unexpectedly strong H119 results, we do not see a short-term catalyst to drive an upward re-rating. Hold.
