EUR 850.00 For Business Accounts Only

Morningstar | DSM Updated Forecasts and Estimates from 16 Apr 2019

No-moat DSM reported fourth-quarter EBITDA of EUR 370 million, up 3% over 2017 or 8% excluding the temporary vitamin effect in the prior-year period. This was ahead of consensus and our estimate. However, just looking at the core business of nutrition and materials, results were in line with our expectations. Despite seemingly "normal" results, the stock was up sharply after the announcement, rising around 8% intraday. In an increasingly fearful environment, we think the market is reacting positively to DSM’s strong 2019 guidance and capital allocation announcements, which exude confidence in the future. The company expects mid- to high-single-digit EBITDA growth in 2019 and announced a 25% increase in dividend and a EUR 1 billion share-buyback program. Our current forecast is for low-single-digit EBITDA growth in 2019, which we remain comfortable with along with our longer-term outlook, which is broadly in line with company targets. Consequently, we don’t expect to make a material change to our EUR 69 fair value estimate. At current levels, the shares look overvalued.

The nutrition segment reported organic growth of 4% and EBITDA growth of 7% in the fourth quarter, excluding the temporary vitamin effect in the prior-year period. Human nutrition remains strong, driven by good growth in dietary supplements, i-health, and pharma. Animal health remained solid despite the African swine flu impact in China and Eastern Europe.

The materials segment reported a 3% decline in volume in the fourth quarter and flat EBITDA. Automotive demand softened in China and Europe while the markets for mobile devices in Asia were weaker in the second half of 2018. Building and construction markets experienced a gradual slowdown throughout the year. These headwinds were largely offset by continued strong demand for Dyneema personal protection and the company’s functional materials used in data infrastructure.