EUR 850.00 For Business Accounts Only

Morningstar | Double-Digit Organic Growth for Symrise in 2Q

Wide-moat Symrise reported double-digit organic growth of 10.6% in the second quarter. The scent and care and flavour businesses led the charge, similar to the first quarter, as nutrition continued to be hurt by destocking at a major customer at Probi. In line with our view, EBITDA was only up a modest 2.5% over 2017 as margins fell due to increasing raw material costs. Given strong growth thus far, Symrise has upgraded 2018 organic growth guidance to “greater than 7%” from 5%-7%. The company still expects an EBITDA margin of 20% in 2018. Currently, our 2018 forecast calls for organic growth of 6.9% and an EBITDA margin of 20.4%. We may tweak our near-term estimates but don’t expect to make a material change to our EUR 70 fair value estimate. At current levels, the shares look slightly overvalued.

With regard to individual segments, second-quarter organic growth was 13.6%, 10.9%, and 4.3% in scent and care, flavour, and nutrition, respectively. Nutrition was once again affected by the Probi destocking. Excluding Probi, organic growth in nutrition was around 7%. We don’t expect the Probi destocking to be a long-term issue, and Symrise asserts that order intake at Probi should normalise in the second half of the year. Performance in scent and care was notably strong, as the high 13.6% growth rate was accompanied by a 70-basis-point margin increase, while margins in the other two segments were down. We think this shows that Symrise’s strategy of backward integration into key raw materials is working. The force majeure at BASF’s citral plant has had a significant impact on fragrance producers in the industry. Indeed, Givaudan reported a 390-basis-point drop in EBITDA margin for its fragrance division in the second quarter. Symrise, on the other hand, has been able to fully deliver on its commitments to customers and is capitalising on the price increases driven by the industry shortages.

We still expect Symrise to lead peers in organic growth due to its ideal customer and product portfolio, including high exposure to local and regional customers, natural ingredients, and the fast-growing adjacent categories of cosmetic ingredients and pet food. In the first half, cosmetic ingredients posted double-digit organic growth, while pet food delivered “solid single-digit” organic growth.