EUR 850.00 For Business Accounts Only

Morningstar | Novozymes Company Report

Novozymes is the global leader in industrial enzymes, which are essentially biological catalysts. Its enzymes allow customers to achieve greater yields, better performance, or lower costs in their products and production processes, primarily by reducing raw material and energy requirements. With near-50% market share, Novozymes is the dominant leader in a consolidated market. The only other major player is Dupont, with 20% share. Key end markets for Novozymes’ products are laundry detergents, ethanol fuel production, food and beverages, and animal feed.Agriculture is a relatively new market for Novozymes, as the technology is largely based on micro-organisms rather than enzymes. The company’s expertise was developed through acquisition of several small companies, and in 2013, it formed a partnership with Monsanto called the BioAg Alliance. While recent performance has been dampened by low crop prices and reduced farmer incomes, we expect the BioAg Alliance to be a key growth platform in the future.Novozymes' business model is most effective in an environment of high energy and raw material costs, as this is when its yield-enhancing and input-reducing solutions are more valuable to its customers. With the low oil price and deflationary raw material environment of recent years, organic growth has tumbled from high-single-digit levels to a low of 2% in 2016. Modest inflationary pressures should provide some relief in the short term, but a return to an environment of $100/barrel oil looks doubtful. The company is moving quickly to reposition its business. However, a return to historical levels of growth is unlikely in the near term, given product development timelines.Research and development is critical to Novozymes’ success, and its expenses in this area dwarf competition. As the macroeconomic environment will likely provide less of a tailwind in the future, the company’s growth will be even more dependent on innovation. We think prospects are good for the new hygiene platform in household care and the corn inoculant in agriculture, but new products in bioenergy will likely only help Novozymes retain market share, rather than enabling it to generate new growth.