Givaudan’s Q1 sales statement broadly confirmed our view on the company as the reported figures are a notch above our expectations and meet consensus. The pattern of the reported figures reflect some first effects of the pandemic.
Q1 sales were up +6.1% to CHF1,619m and organic growth was +5.4% at the group level. Emerging markets (+8.9%) contributed the most as mature markets were up by +4.3% (to CHF946m).
... and higher negative ‘one-offs’ weighted on profitability. Flavour’s top-line came in below our expectations due to modest growth in North America and EAME. After a strong start in H1, the division’s profitability fell in H2. At group level, the ongoing negative effects for GBS and acquisition-related costs had their full effect in 2019. The numbers were also short of consensus.
Givaudan’s operating growth was additionally pushed by acquisitions, especially in Flavour. We assume there were some positive effects from higher sales prices for the established business, whereas new wins are expected to be calculated with higher input costs. Although it remains unclear whether higher sales prices really compensated for higher raw material prices, we expect a continuation of the positive H1 trend. The top-line came in slightly stronger than expected, whereas consensus was met.
Givaudan reported mixed H1 figures. The top-line was driven by sustainable organic growth in each division and was additionally pushed by acquisitions, especially in Flavour. The gross profit margin already shows the negative impact from higher raw material prices and a less favourable product mix.
The H1 figures confirmed our cautious view on the company, whereas consensus’ profitability expectations were not met. The reasons for this development were not explained well.
Givaudan’s Q1 sale were driven mainly by the acquisition of Naturex, pushing Flavour and mature markets. Organic sales also made a strong contribution to the top-line, which should lead to further positive profitability momentum.
Givaudan reported good top-line growth, but profitability suffered from the broad impact from higher raw material prices and the costs for Givaudan Business Solutions GBS), which still generated a loss on a net basis. However, the top-line beat our expectations, but profitability came in below. Consensus was barely met on the profitability level.
... from acquisitions. Givaudan reported equal contributions from the organic business and from acquisitions to the top line in Q3. The reported set of figures was slightly above our expectations and outpaced the consensus. Unfortunately, the report gave only some small hints on profitability.
Givaudan held an analysts meeting with the full management and gave some deeper insights into the economics and strategy of the South-East Asian region.
BASF’s outage of the citral plant at the end of October 2017 (declaration of Force Majeure) still impacts the value chain and burdens Fragrance’s profitability as these businesses have to buy stock for any(?) price in order to secure sourcing. The impact from which has been stronger than expected and profitability in H1 came in lower than expected. Consensus was broadly met.
Givaudan’s Q1 sales figures were slightly stronger than expected but, lacking additional information, we remain cautious regarding the profitability development as H2 17 had seen some pressure.
Givaudan’s FY figures were pretty much in-line with our expectations, but profitability suffered from the higher share of the CHF170 costs for the Givaudan Business Solutions programme, which had been guided lower. Business looks in a good shape. Higher raw material costs might not be passed through the way they have to in order to protect margins.
Givaudan’s sales 9M sales figures were up +7% to CHF3,757m, driven by organic growth (+4%) and acquisitions (+4%). Mature markets rose +11% to CHF2,143m and high growth markets by +2% to CHF1,614m.
Management confirmed mid-term guidance for the 2015-20 period, expecting a 4-5% average organic growth rate and an average 12-17% free cash flow as a percentage of sales.
A more explicit guidance for 2017 was again not given.
Givaudan reported +6% (organic: +2%) higher sales (to CHF2,483m) but the gross profit margin declined 80bp to 45.6% in H1 due to the newly-acquired businesses. EBITDA was down 6% to CHF597m as, in the previous year’s period, the company booked a CHF55m gain from changes in plan assets. Net income attributable to shareholders came in at CHF384m (CHF368m).
Operating CF (CHF269m after CHF237m) primarily improved due to lower NWC outflow (CHF-210m after CHF-242m) despite higher inventories. Investing CF (CHF-229m after CHF-48m) was driven by significant higher capex and acquisition-related costs (Activ International) of CHF-111m. Financing CF moved from CHF-407m to CHF-146m due to higher net cross debt proceeds (CHF385m after CHF88m), which was more than eaten up by the higher dividend payment of CHF-515m (CHF-495m).
Management confirmed its mid-term guidance for the 2015-20 period, expecting a 4-5% average organic growth rate and an average 12-17% free cash flow as a percentage of sales.
An explicit guidance for 2017 was again not given.
Givaudan reported +8% (organic: +4%) higher sales (to CHF1,422m), which was helped by favourable FX developments. Mature markets grew +13% (organic: +5%) to CHF708m and emerging markets were more moderate (+2% (organic: +2%) to CHF534m).
Givaudan reported +6% higher FY sales (organic: +4%) to CHF4,663m, but the gross profit margin weakened from 46.2% to 45.6%. EBITDA came in +5% higher at €1,126m and the margin was 24.1% (24.3%). Net income attributable to shareholders increased +3% to CHF64m.
Operating CF declined 12% to CHF805m, primarily due to lower adjustments for non-cash items (CHF261m after CHF390m). Investing CF moved from CHF-225m to CHF-503m primarily pushed by acquisitions (Spicetec Flavors and Seasonings). Financing CF was CHF-437m (CHF-578m) benefiting from higher net cross debt issuance despite higher dividend payments.
Management proposes, as expected, a CHF2 higher dividend (CHF56 after CHF54) per share at the next AGM on 23 March 2017.
Management confirmed the next mid-term guidance for the 2015-20 period of a 4-5% average organic growth rate and an average 12-17% free cash flow as a percentage of sales.
A more explicit guidance for 2017 was not given.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
Whether we know it or not, advanced materials are a core component in the everyday life of the everyday person. They are the key material in items we often disregard, such as printer inks and lotions, to objects which defy the laws of gravity like the Airbus A380 and London’s Shard. Furthermore, these materials are not only essential to many objects and structures, but, due to their superior qualities, are the key to the advancement of many industries. One such example is the use of carbon fibre which offers five to ten times more rigidness, stiffness, and strength than its aluminium counterpart. As a result of these impressive qualities, motorsport and athletics have improved ten-fold since their mainstream use and new records are broken every year.
Companies: AGM AUTG BIOM BOY CAR CKT EMH EXO GRPH HAYD IKA ITX CRPR MGAM NANO OXIG SYN SCE SYM VCT ZEN HDD
Following our headline ’Settled!?’ on 25/06/2020, our new headline looks a bit revanchist as we had expected that Bayer ‘just’ wanted to manage expectations by pointing to the fact the mechanism has to be approved by the judge. The judge’s doubts on the planned mechanism for the glyphosate-related cases might sweep current management away. Or the company gets a different name.
Cronin gives exposure to the commercial opportunities from the digitization of chemistry in discovery & manufacture, streamlining chemical processes, expediting compound development and optimising molecular design. It serves the pharmaceutical, academic & chemical research sectors. Its first product is DigitalGlassware™, with scope to develop an autonomous synthesis engine, Chemputer™. Cronin has a sound balance sheet with cash of £3.27m at FY2017 and made a loss of £1.58m. We initiate with a Buy and a target price of 4.75p
We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.
Companies: ARS CYAN HYR LIT SOM ABBY AMS AMER ANX ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE DTG DEMG EMR FPO FST GTLY GENL INCE GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO INDI JHD JOG KEYS KCT KGH LAM LOK MACF MNO MANO MOD MKLW OXIG PCA PANR APP PXC PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TRAK TRI VNET VTC ZOO ZTF
Airbus secures €15bn credit facility but partially restarts production in France & Spain, Cummins suspends production and FY20 guidance as customers shutdown
Companies: CGS HAYD HEAD HTG OXIG RSW RNO ROR TWD TRI ZTF GHH
Japanese PMI falls to lowest level since 2009, GE Aviation cuts 10% of workforce, Kone downgrades 2020 outlook
Companies: CGS HAYD HEAD HILS JHD OXIG RSW RNO TWD ZTF SOM GHH
US & German manufacturing PMI hits lowest readings since 2009, UK manufacturing PMI heads below 50, BorgWarner expects material financial impact from customer production halts
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In October 2019 Applied Graphene’s (AGM’s) management announced it was re-aligning resources around dispersion and application technology to better support product development with customers presenting the nearest-term revenue opportunities. This focus supported six customer launches of coating products containing AGM’s graphene dispersion during calendar year 2019. These launches are for both mass-market and specialist applications. As a result of the ensuing uptick in product sales, revenues so far for FY20 are already 20% higher than the whole of FY19.
Companies: Applied Graphene Materials
COVID-19 update – continuing to operate, div. suspended
Companies: Scapa Group
Adrian Potts, the CEO of Applied Graphene Materials (AGM), discusses the company’s commercial progress over the course of the past 12 months, which saw the launch of a number of coatings products based on AGM’s graphene dispersions. These products include industrial anti-corrosion products from Blocksil and Alltimes Coatings and retail products from Halfords and Hycote. He also highlights the progress made in the composite and functional materials markets and why initiatives to develop water-based dispersions are key to enlarging the addressable market. Finally, he explains how management has strengthened its routes to market and the actions the company has taken to mitigate the impact of COVID-19.
Applied Graphene Materials is a leading innovator in the manufacture and application of graphene. The company has developed a proprietary ‘bottom-up’ process for the production of high specification graphene and owns the intellectual property and know-how behind this process. The company’s immediate commercial focus is on the coatings market, where products based on AGM’s graphene dispersions can provide demonstrably improved corrosion protection versus incumbent technologies.
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Companies: Haydale Graphene Industries
Treatt has had another successful half year, and the COVID-19 pandemic has, to date, had no adverse effect on the business. As previously stated, the sharp fall in citrus prices during FY19 has continued into H120, hence H1 revenue is down 5.6% at constant currency. There was good growth in the other parts of the business, with tea and health & wellness as the standout performers. Building work on the new UK site has slowed due to the COVID-19 pandemic, and at this stage guidance is for relocation to be in 2021, ie a c three- to six-month delay vs previous guidance of Q420. Our forecasts and fair value remain unchanged at 530p.
Treatt demonstrated its strength and resilience in H120, as so far the COVID-19 pandemic has not had any adverse impact on trading performance. Of course, this is in part due to the categories in which Treatt operates, with some of its products being used in household cleaners, which have witnessed a global spike in demand. Nevertheless, the steady performance is testament to the management and culture of the business, which have been able to withstand the unexpected and exogenous shock. H219 and H120 were affected by a global weakness in citrus raw material prices, which in turn affected revenue growth. Citrus prices have now started to firm and we expect growth in this category to return in H2. We leave our forecasts mostly unchanged but roll forward our DCF and hence our fair value rises to 560p (from 530p previously).
Against a backdrop of generally negative company announcements, Hardide bucked the trend by releasing solid interim results for the 6 months ended March 2020, noting limited impact to date from COVID-19 and a positive trading outlook. Furthermore, the allimportant move to new facilities and corresponding capacity expansion is both on track and on budget. Several of Hardide’s end markets will clearly be feeling the impact of COVID-19. However, we feel the importance of Hardide’s technology to its customers by extending the useful life of components and its diversity of end markets across multiple sectors including oil & gas, aerospace, flow control, power generation and precision engineering is enabling it to weather the storm. We leave our forecasts unchanged and see potential for an upgrade should end markets maintain strength and H2 margins match those of H1.