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Novozymes (Sell, TP: DKK300.00) - Another year with uncertainty

Q4 organic sales growth was c1% YOY (c-1% full year), reaching the midpoint of the latest 2019 organic growth guidance. The 2020 organic growth guidance of 1–5% was as wide as we feared, reflecting continued low visibility and high uncertainty – especially around BioAg. We reiterate our SELL but have raised our target price to DKK300 (250), reflecting a 2020e P/E of c28x (average for past 10 and five years) versus 23x previously (low end of the 10 and five years range). 2019 guidance reached. 2019 organic sales growth was c-1% YOY and the EBIT margin was 28.1%. For Q4, we note weak organic growth in Agriculture & Feed versus our estimates and consensus, with BioAg weak (-25–30%) in particular, due to weak US farm economics and severe weather conditions. On the positive side, the c5% organic growth in Household Care bodes well for organic growth for the divisions in H1 2020e. 2020 guidance low and wide. Novozymes guided for 1–5%YOY organic revenue growth for 2020 (we expect 3.2%, consensus 3.7%) and flagged expected continued uncertainty in the agricultural business. The 2020 EBIT margin guidance is c27% (we expect 26.3%, consensus 26.7%). The company also highlighted continued uncertainty in Agriculture & Feed and Bioenergy. We believe the wide guidance can be reached and that the new CEO might narrow it during 2020e. Focus on new CEO. On 1 February, Ester Baiget joins Novozymes as CEO (previously Business President for Dow’s Industrial Solutions), which means that she has not been part of outlining the 2020 guidance, nor has she been involved in the new strategy and long-term targets presented at the CMD in June 2019. We await her take on the organisation and potential changes to the strategy. SELL reiterated, but target price raised to DKK300. We still view the risk/reward as unfavourable, with low visibility and the organic growth outlook for the key divisions not justifying the valuation. Our target price reflects a 12-month P/E of c28x (average for the past 10 and five years) – previously 23x (low end of the 10 and five years range)