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Koninklijke DSM NV DSM

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DSM Was the One That Got Away; Upgrading Moat to Narrow; Raising Fair Value Estimate to EUR 150

Rob Hales, CFA Equity Analyst

Analyst Note

| Rob Hales, CFA |

Koninklijke DSM, or DSM, has essentially completed its transformation to a fully focused health and nutrition company. We expect the remaining industrial materials businesses to be divested in 2022, leaving DSM with 100% of sales from health and nutrition end markets. Consequently, we are lowering our weighted average cost of capital, or WACC, to recognize DSM's lower systematic risk and upgrading our moat rating to narrow. Altogether, our refreshed analysis boosts our fair value estimate 75% to EUR 150. We are late to the party in recognizing DSM's improving fundamentals as the stock has already re-rated to a higher valuation multiple. Regrettably, DSM was the one that got away. Our EBITDA forecasts are now 4% above consensus due to our optimism around the innovation pipeline. Despite modestly aggressive forecasts versus consensus and a much lower WACC, our fair value estimate remains well below the market price and consensus target price. Hence, we think the market is using an aggressively low discount rate for DSM, similar to other defensive companies with long-duration growth outlooks.

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Company Profile

Business Description

Based in the Netherlands, Koninklijke DSM is a global science-based company operating in the fields of nutrition, health, and sustainable living. The company provides solutions for animal nutrition and feed, food & beverages, pharmaceuticals, medical nutrition, early life nutrition, nutrition improvement, dietary supplements, and personal care. DSM is active in all stages of the value chain, producing pure active ingredients, incorporating them into sophisticated forms, and providing tailored premixes, forward solutions, and branded consumer products.

Het Overloon 1, P.O. Box 6500
Heerlen, LI, 6411 TE, Netherlands
T +31 455788111
Sector Basic Materials
Industry Specialty Chemicals
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2021
Stock Type
Employees 21,173