Analyst Note| Ioannis Pontikis, CFA |
Wide-moat Barry Callebaut reported fiscal 2022 nine-month results, with group sales volumes up 7.9% (7.1% excluding the European Chocolate Company acquisition), higher than company-compiled consensus estimates. Within this, the key drivers were the gourmet and emerging-market segments—both continued strong recoveries in the third quarter (gourmet up 27.4%) and emerging markets also grew robustly by 8.7% and outsourcing was up by 6.9%. We expect the fast recovery of the gourmet and emerging-market segments to continue to have a positive effect on margins, as these are materially more profitable than the rest of the group. After the salmonella incident at the Wieze factory, Barry Callebaut now expects the first lines to restart production in early August 2022 with a gradual ramp-up to full capacity over the following weeks. The company is still unsure about the full financial impact, but does expect it to be notable in fourth-quarter results. Based on our analysis in our July 4 note, and assuming roughly two months of no- or undercapacity production activity, we would expect the impact to be no higher than 2% on the top line (on full-year numbers, hence the much higher fourth-quarter numbers). Management reiterated midterm guidance (5% to 7% volume growth and EBIT above volume growth by fiscal 2023 versus 6.1% in our model). We maintain our CHF 2,400 fair value estimate. With shares trading in 4-star territory, and the chocolate business' defensive characteristics (against inflation concerns and recessionary fears), we think Barry Callebaut makes a compelling investment case for the defensive long-term-oriented investor.