Chr. Hansen: Strong EBIT Driven by Organic Growth and Pricing Initiatives

Wide-moat Chr. Hansen CHR reported second-quarter EBIT of EUR 91 million, up 8% over the previous year. Exchange rates, price measures, and volume growth contributed positively to the rise, which was partly offset by rising input costs and an unfavorable product mix. EBIT margin of 27% was down from 27.7% last year as inflationary pressure continued, but it was 80 basis points ahead of the company-compiled consensus of 26.2%. Organic growth guidance for 2023 was increased to 8%-11% and free cash flow now at EUR 180 million-EUR 220 million, while EBIT margin guidance was maintained at 26%-27%. We don’t expect to make a material change to our DKK 620 fair value estimate, but we plan to revise our model once we have more color on the merger with Novozymes, as the completion of the combination remains subject to the satisfaction of an additional number of conditions, including certain regulatory approvals. At current levels, the shares look undervalued.

The health and nutrition division of Chr. Hansen experienced organic growth of 9%, beating the company-compiled consensus of 3.8%. This growth was mainly driven by volume, with an additional boost from pricing initiatives. The timing of orders had a positive impact on the human milk oligosaccharides business. EBIT margin decreased to 24.7% from 27.3% in the previous year, which the company attributes to continuing inflationary pressure, an unfavorable impact from product mix, and tough comparables from last year.

In the food cultures and enzymes division, organic growth of 12% exceeded expectations of 8.4%. This was mainly due to the success of pricing initiatives, combined with solid volume growth that outpaced underlying markets. EBIT margin was 28.4%, compared with 28.0% last year, reflecting the success of pricing initiatives, scalability, and a favorable impact from exchange rates. However, this was partially offset by higher input costs and changes in the product mix.