EUR 850.00 For Business Accounts Only

Morningstar | Nutrition Powers Ahead for DSM in 3Q but Materials Outlook Uncertain

Koninklijke DSM has been actively reshaping its portfolio of businesses through acquisitions and divestitures. The end result is a company that is heavily weighted toward nutrition, with less emphasis on chemicals. While it is not yet moatworthy, we think the company has been successful in creating a less cyclical business with more sustainable margins. DSM has focused on internal efficiencies in recent years, and we expect the remaining cost savings targets to be achieved. Going forward, the company will be pursuing acquisitions again, primarily in the nutrition business. The nutrition segment primarily manufactures vitamins and other micronutrients for the animal feed, food and beverage, infant nutrition, and dietary supplements industries. However, it is also moving up the value chain through its premix business, which we think is wise, given that production of basic vitamins is becoming commodified. The outlook for animal nutrition is strong. However, we remain concerned about the prospects of the U.S. dietary supplements market.The performance materials segment is also shifting toward higher-value activities, primarily through divestitures; the company recently sold most of its noncore joint ventures. Remaining key products include engineering plastics, Dyneema (a high-performance fiber), and resins for paint and coatings. While the segment remains tied to the business cycle, we think the outlook is favourable, given structural tailwinds from increasing environmental regulation in automotive and construction and consumer demand for electronics.