Company Reports

Wide-moat Novonesis reported first-quarter 2024 organic revenue growth of 4%, in line with company-compiled consensus. The composition of growth from a segment perspective was slightly different, however, with stronger-than-expected 15% like-for-like growth for the householdcare business area, offset by a weaker-than-expected 5% decline for the human health business area. The strong growth in household care sales was attributed to the increasing penetration of enzyme solutions in emerging markets and to innovation. The decline in human health sales was mainly attributed to demand weakness for dietary supplements and early-life nutrition solutions, similar to dynamics reported by wide-moat DSM-Firmenich. Still, management indicated that momentum is improving going into the second quarter and confirmed a full-year outlook for organic revenue growth between 5% and 7% and adjusted EBITDA margin of around 35%. We increased our fair value estimate by 4% to DKK 410 after rolling and updating our model with the recently released pro forma numbers. Our 2024 forecast calls for organic sales growth of 5.5% and an adjusted EBITDA margin of 35%. Our long-term forecast is broadly unchanged, assuming around 6% organic revenue growth on average for the next decade and a midcycle adjusted EBIT margin of 31%/adjusted EBITDA margin of 39%.

Novonesis, created in 2024 through the merger of Novozymes and Chr. Hansen, is the global leader in the industrial enzymes and microbial solutions, or cultures, markets. Enzymes are biological catalysts that allow customers across many different industries to achieve greater yields, better performance, or lower costs for products and production processes, primarily by reducing raw material and energy requirements. Its microbial solutions portfolio caters to the food, beverage, agriculture, and human health end markets. Its products are essential for the fermentation process in dairy and for providing health benefits for dietary supplements and infant nutrition.

We are initiating coverage of Novonesis with a fair value estimate of DKK 395 and a wide economic moat rating. Novonesis stands for “new beginning” and is the fitting new name for wide-moat Novozymes following the completion of its merger with wide-moat Chr. Hansen. As a result of the combination, the company boasts a dominant market position across two consolidated biosolutions markets: enzymes and cultures, with a market share of nearly 50% in both. Our wide moat rating is based on the company’s powerful intangible assets, switching costs, and cost advantage. At current levels, the shares trade in 3-star territory but still offer an upside of around 8%.

Novonesis, created in 2024 through the merger of Novozymes and Chr. Hansen, is the global leader in the industrial enzymes and microbial solutions, or cultures, markets. Enzymes are biological catalysts that allow customers across many different industries to achieve greater yields, better performance, or lower costs for products and production processes, primarily by reducing raw material and energy requirements. Its microbial solutions portfolio caters to the food, beverage, agriculture, and human health end markets. Its products are essential for the fermentation process in dairy and for providing health benefits for dietary supplements and infant nutrition.

Wide-moat Novozymes reported fourth-quarter organic revenue growth of 6%, in line with the company-compiled consensus, and an EBIT margin before special items of 25.1%, 50 basis points below consensus. The weaker margin was mainly the result of sales mix, with a relatively weak performance from human health and agriculture solutions. Price increases contributed 4% to organic growth, offsetting the effects of higher input costs, while volumes continued to be resilient, up 2% in the quarter and flat for the year. Our fair value estimate is unchanged. This is the last quarterly report for Novozymes as a standalone entity since the combination with Chr. Hansen was completed this week and Novozymes becomes Novonesis. We will cover Novonesis going forward, and we will reflect this change in our analysis shortly. Pro forma numbers for 2023 and the 2024 outlook for Novonesis are expected no later than March 31.

Wide-moat Novozymes reported third-quarter EBIT before special items of DKK 1.2 billion, down 10% versus 2022 but 6% ahead of consensus. The EBIT margin, at 26.6%, marked a sequential improvement compared with the 24% reported in the second quarter and was 130 basis points ahead of consensus. Organic sales growth was 8% (compared with 6% in the consensus), driven by a 3% growth in volume. This growth was supported by the gradual reduction in destocking in the food-related sectors and increasing demand for sustainable biosolutions. With results beating consensus for both organic growth and EBIT margin, the share price was up 6% intraday at the time of writing. The guidance for 2023 remains unchanged, however, with organic growth anticipated to be in the range of 4% to 6%, primarily driven by pricing. As the fourth quarter progresses, management anticipates further stabilization in destocking activities within the food-related sectors. We confirm our DKK 395 fair value estimate. At current levels, the shares look undervalued.

Wide-moat Novozymes reported second-quarter EBIT of DKK 1 billion, down 9% versus 2022 and 6% below the company-compiled consensus. Across all segments, except for bioenergy, organic sales growth fell below the expectations laid out in the company's compiled consensus. The company's less robust performance in the first half prompted Novozymes to revise its 2023 guidance for organic growth, now projecting a range of 4% to 6% (previously 4% to 7%), primarily because of destocking and lower consumer demand. Despite this adjustment, the EBIT margin was maintained at the level of 25% to 26%, driven by pricing. Our expectations are still in line; consequently, we maintain our fair value estimate of DKK 395. At current levels, the shares look undervalued.

Wide-moat Novozymes reported first-quarter results that were consistent with the year's outlook. EBIT reached DKK 1.1 billion, with an organic sales growth of 5%. This growth was supported by favorable timing of orders, solid pricing, and underlying volume growth, particularly in agriculture, animal health and nutrition, and bioenergy. Novozymes exceeded the company-compiled consensus, with their EBIT 5% higher and organic growth 1.7% percentage points higher. The company maintained its 2023 organic growth guidance of 4%-7%, with an EBIT margin of 25%-26%. Our forecast aligns with the results, so we anticipate no significant changes to our DKK 395 fair value estimate. At present, the shares are trading in 3-star territory.

Wide-moat Novozymes reported organic growth of 11% in the fourth quarter and 9% for the year, beating company-compiled consensus. The bioenergy segment was the primary driver, exceeding consensus' annual projection by 500 basis points. The EBIT margin of 26.4% for the entire year was in line with guidance, and broadly in line with consensus of 26.6%. Compared with last year's outlook, the range for organic revenue growth is 100 basis points narrower for 2023, reflecting management's increased confidence. Novozymes' guidance anticipates 4%-7% organic growth, driven by volume and price strategies, and maintains a 25%-26% EBIT margin. This is broadly consistent with our forecast. Consequently, we don’t expect to make a material change to our DKK 395 fair value estimate.

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.

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.

Wide-moat Novozymes and wide-moat Chr. Hansen announced their intention to merge via exchange of shares. Essentially, Novozymes is acquiring Chr. Hansen at an implied 49% premium for the free-float shares of Chr. Hansen (blended premium of 38% after incorporating Novo Holdings' 22% interest in Chr. Hansen at essentially no premium given the company is the anchor shareholder in both companies). At the close of treading on Dec. 12, Novozymes shares were down 15% while Chr. Hansen shares were up 18%, likely reflecting the high implied multiple of the transaction (24 times EBITDA before synergies) and aggressive synergy assumptions (15%-17% including revenue and cost synergies). However, given our relative valuations for the two companies differ from the market (Novozymes overvalued at 1.1 times price/fair value estimate and Chr. Hansen undervalued at 0.8 times price/fair value estimate, preannouncement), the deal terms work out to be fair on our numbers despite excluding all the revenue synergies. Thus, we are increasing the fair value estimates of both companies based on our allocation of the cost synergies boost to valuation. Novozymes’ fair value estimate rises 5% to DKK 395 from DKK 375 while Chr. Hansen’s fair value estimate rises 13% to DKK 620 from DKK 550 (reflecting the free-float shares). We maintain our wide moat rating for each company and expect to maintain our wide moat rating for the combined company. At these levels, Novozymes shares look fairly valued while Chr. Hansen shares look moderately undervalued.

Wide-moat Novozymes reported third-quarter organic sales growth of 6% with an EBIT margin of 29.5%, in line with previously released expectations announced on Oct. 7. Guidance for 2022 was maintained except free cash flow was reduced to DKK 1.3 billion-DKK 1.7 billion from DKK 1.7 billion-DKK 2.1 billion due to the timing of capital expenditures for the construction of the advanced protein solutions production line. We don’t expect to make a material change to our DKK 375 fair value estimate. At current levels, the shares look fairly valued.

Wide-moat Novozymes pre-released third-quarter sales and raised 2022 guidance. Specifically, third-quarter organic revenue growth was 6%, while 2022 organic revenue growth guidance was raised to 8%-9% from 6%-8%. Despite the guidance upgrade, shares were down around 4%-5% intraday. The company compiled consensus indicated expectations of 7.8% organic growth in the third quarter and 8.6% organic growth for the year, already above management’s previous guidance. The composition of growth in the third quarter likely also spooked investors as the vast majority of growth came from bioenergy, at 32%, which is a highly cyclical business. In contrast, the more stable areas of household care and food, beverages, and human health posted disappointing organic growth of negative 1% and 2%, respectively, well below consensus expectations. Furthermore, agriculture, animal health, and nutrition posted a very weak negative 7% organic growth and is proving to be incredibly volatile. Timing-related effects were said to have affected all of these businesses. The EBIT margin for the third quarter is expected to be a relatively high 30%, but this was artificially boosted by the nonrecurring accounting gain of DKK 200 million related to 21st.BIO. Our 2022 organic growth forecast is a relatively conservative 7.6%, and we don’t expect to make any material changes to our DKK 375 fair value estimate after reviewing the sales update. At current levels, the shares look fairly valued.

Wide-moat Novozymes reported second-quarter EBIT of DKK 1.1 billion, up 12% versus 2021 and about 5% above the company compiled consensus. Organic sales growth of 10% matched the first quarter and was ahead of consensus expectations for 7.4%. A strong first half has led Novozymes to upgrade 2022 guidance. Organic growth is now expected to be 6%-8% (4%-8% previously) with an EBIT margin of 26%-27% (25%-26% previously). However, the margin upgrade is primarily due to a nonrecurring accounting gain. We have boosted our 2022 estimates but believe some of the demand has been pulled forward from 2023. Consequently, we are maintaining our DKK 375 fair value estimate. At current levels, the shares look overvalued.

The European chemicals sector enjoyed strong investment returns once central banks turned on the liquidity taps to combat the coronavirus pandemic in March 2020. At the start of 2022, the outlook remained bright as demand remained robust while inflation, particularly for raw materials, was expected to peak in the first half of 2022. However, we think the Russia-Ukraine war has changed the equation, leading to a more ominous picture in the back half of the year given our expectations for sustained raw material inflation and rising interest rates. Considering guidance provided by companies in the sector does not account for the impact of the Russia-Ukraine war, we think sector guidance is generally too optimistic and thus, cuts may be necessary in the second half of 2022. While our 2022 outlook for the sector has dimmed, we see opportunities at current prices. For the industrial chemical companies, we prefer Lanxess given its compelling valuation (0.5 times price/fair value estimate) and dual catalysts (business transformation, lithium project) that should create value regardless of the economic environment. For the consumer chemical companies, we prefer Chr. Hansen given its relatively attractive valuation versus peers, wide moat rating, and leading organic growth outlook.

Wide-moat Novozymes reported first-quarter EBIT of DKK 1.1 billion on organic sales growth of 10%. EBIT was around 4% above the company-compiled consensus while organic growth was 3.3 percentage points higher. Shares rose around 2.5% on the day while most peers were down. With the strong start, Novozymes upgraded its 2022 organic growth guidance to 4%-8% from 3%-7% previously, while EBIT margin guidance was maintained at 25%-26%. We were forecasting 5.7% organic growth and a 26% EBIT margin going into the quarter so we don’t expect to make a material change to our DKK 375 fair value estimate. At current levels, the shares look overvalued.

Wide-moat Novozymes reported 7% organic growth in the fourth quarter and 6% for the year, beating company-compiled consensus on continued strength in grain and tech processing and food, beverages and human health. The full-year EBIT margin of 26.8% was in line. Shares were trading flat intraday, likely due to 2022 guidance being broadly in line. The growth guidance range is wide again for 2022 due to market volatility from the continued impact of the coronavirus pandemic. Novozymes expects organic growth of 3%-7% and an EBIT margin of 25%-26%. This is in line with our forecast for 5.7% organic growth and an EBIT margin of 26%. Consequently, we don’t expect to make a material change to our DKK 375 fair value estimate. At current levels, shares look overvalued.

After incorporating the acquisition of Synergia Life Sciences into our model, we maintain our DKK 375 fair value estimate for wide-moat Novozymes. At current levels, the shares look overvalued.

Wide-moat Novozymes reported third-quarter results that beat company-compiled consensus, including organic growth of 7% versus consensus of 5.6%. Strong results caused the company to raise 2021 guidance again. Organic growth is now expected to be 5%-6% (4%-6% previously) with an EBIT margin of 27% (26% previously). Shares rose 2% on the news. We were already on the high end of guidance so we are maintaining our DKK 375 fair value estimate. At current levels, the shares look overvalued.