Novozymes Earnings: Organic Growth and EBIT Margin Ahead of Consensus

Wide-moat Novozymes NZYM B 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.

Within the segments, organic sales growth was 6%, 7%, 21%, negative 3%, and 6% for household care; food, beverages, and human health; bioenergy; grain and tech processing; and agriculture, animal health, and nutrition, respectively. Consensus estimates were broadly off across the board, except for food, beverages, and human health, with destocking gradually leveling off.

Full-year organic sales growth expectations for the segments were maintained compared with the second quarter except for bioenergy and grain and tech processing, which were raised. Organic sales growth for 2023 is expected to be in the low single digits for household care and for food, beverages, and human health; 20% (midteens previously) for bioenergy; high single digits (previously low single digits) for grain and tech processing; and mid to high single digits for agriculture, animal health, and nutrition.