DSM-Firmenich Earnings: Early Signs of Underlying Recovery Despite Challenging Vitamin Markets

Wide-moat DSM-Firmenich DSFIR reported third-quarter adjusted EBITDA of EUR 409 million, roughly in line with the EUR 405 million company-compiled consensus. Trading conditions remain difficult across vitamin end markets, with no signs of abating in the fourth quarter. This caused management to narrow its full-year adjusted EBITDA guidance to EUR 1.8 billion, the lower end of its prior EUR 1.8 billion-EUR 1.9 billion range. It revised the negative impact from the vitamins business to EUR 500 million for the year from EUR 400 million. Despite the more negative outlook, the market reacted positively to DSM-Firmenich’s update, sending shares around 7% higher at the time of writing. We believe this is due to an improvement in cash conversion in the quarter thanks to increased management focus, as well as to more clarity provided around longer-term plans to restore vitamins profitability and drive cost and revenue synergies following the merger. We lowered our fair value estimate to EUR 135 per share from EUR 140 after incorporating the short-term EBITDA headwinds (our forecast was at the upper end of the prior range). Our long-term forecast is unchanged, with EBITDA margin expected to reach 23% by 2032 and revenue growth just shy of 5% on average between 2024 and 2032. We believe the shares still offer plenty of appreciation potential for patient investors, trading in 5-star territory.

Efforts are underway to deliver on the EUR 200 million in cost savings from the restructuring program in the vitamins business. First savings are expected in the fourth quarter, followed by EUR 100 million next year and the balance in 2025.

The quarter saw the first-ever approvals in China for two of DSM-Firmenich’s human milk oligosaccharides, giving the company a competitive edge in the largest early-life nutrition market in the world, accounting for around 40% of global sales.