Symrise: Cheaper Than Before But Not A Bargain

8 months ago

Vielzahl von Gewürzen und Kräutern auf Küchentisch

In my last article astir Symrise (OTCPK:SYIEF) I called the banal inactive overvalued (despite giving the banal a “Hold” rating). Since August 2021, erstwhile my past nonfiction was published the banal declined astir 25% - nevertheless this diminution is in U.S. dollars and Symrise arsenic a German concern is reporting successful Euro. On August 20, 2021, Symrise was trading for €125.50 and now, astatine the clip of writing, the banal tin beryllium bought for €104.50. This is resulting successful a much humble diminution of lone 16.7% arsenic FX effects besides contributed to the 25% diminution successful U.S. dollar.

In the pursuing article, I volition supply an update astir Symrise and effort to reply the question if the diminution was capable to not spot Symrise arsenic overvalued anymore.

Business Description

Symrise was founded successful 2003 successful Holzminden, Germany by the merger of Haarmann & Reimer, which was founded successful 1874 and acquired by Bayer (OTCPK:BAYZF) successful 1953 and Dragoco, which was founded successful 1919. In 2021, Symrise generated €3,826 cardinal successful income and the institution has implicit 11,000 employees and implicit 30,000 antithetic products.

Symrise is providing spirit and fragrance acquisition for nutrient production. It is offering products for antithetic exertion areas – similar nutrient and favored food, beverages, dairy oregon snack nutrient arsenic good arsenic hairsbreadth attraction and oral attraction of cosmetic ingredients arsenic good arsenic user fragrances. The institution claims that radical interact with the products of Symrise astir 20-30 times per time – from the toothpaste successful the greeting to the nutrient 1 eats, the beverages 1 drinks, oregon the perfume utilized during the day. Symrise is reporting successful 2 antithetic segments – Scent & Care (which generated €1,491 cardinal successful income – 39% of full sales) and Taste, Nutrition & Health (€2,335 cardinal successful income – 61% of full sales). For much accusation astir the concern and the wide economical moat, spot my nonfiction “Hidden Stock Market Gems: Symrise"

Intrinsic Value Calculation I

The biggest contented I had with Symrise successful my past nonfiction was the valuation of the stock. At the clip of writing, Symrise was trading for 50 times net and contempt the institution having a wide economical moat astir its concern and increasing with a coagulated pace, specified a valuation aggregate was not justified. When looking astatine the TTM net per stock of €2.93 (H2/21 and H1/22 arsenic the institution does not study Q3/22 EPS) we get a P/E ratio of 36.

Although the price-earnings ratio is little than astir 1.5 years ago, I ever get skeptical erstwhile stocks are trading for a valuation aggregate supra 30 arsenic determination are precise uncommon instances erstwhile specified a valuation aggregate is justified. But let’s look astatine the concern and the past results to find if specified a precocious valuation aggregate could beryllium justified for Symrise.

Results

We tin commencement by looking astatine the results for the 3rd 4th of fiscal 2022, but similar galore different European companies Symrise is issuing lone a “Trading Update” with constricted fiscal information. Organic income grew 26.4% year-over-year from €975.2 cardinal successful Q3/21 to €1,232.9 cardinal successful Q3/22. And portion affirmative currency effects contributed to growth, integrated income maturation was inactive 13.6%.

When looking astatine the results for the archetypal fractional of fiscal 2022, income for the Symrise Group accrued from €1,908 cardinal successful H1/21 to €2,260 cardinal successful H1/22 – resulting successful 18.5% year-over-year maturation (with integrated income maturation being 10.2%). EBIT besides accrued 16.0% year-over-year from €296.6 cardinal successful the archetypal fractional of 2021 to €344.2 cardinal successful the archetypal fractional of 2022. And finally, net per stock accrued from €1.45 to €1.64 – 13.1% year-over-year growth.

When looking astatine the 2 antithetic segments some contributed to growth. And portion “Scent & Care” could turn “only” 15.2% (organic maturation being 6.3%), “Taste, Nutrition & Health” accrued 20.6% (with integrated maturation being 12.7%).

And for the afloat twelvemonth of fiscal 2022, Symrise is expecting to intelligibly outgrow the marketplace with integrated maturation being important supra its 7% maturation people (we volition get backmost to that).

Growth By Acquisitions

Since my past nonfiction was published successful August 2021, Symrise made respective acquisitions – which is 1 mode to turn for the business. At the extremity of 2021, Symrise acquired the Canadian institution Giraffe Foods Group, which is simply a shaper of customized sauces, dips, dressings, syrups, and beverages for business-to-business customers successful the location repast replacement, nutrient work and retail markets. Final acquisition costs were €324.8 million.

In January 2022, Symrise acquired Schaffelaarbos B.V., which is simply a starring supplier of sustainably sourced proteins from eggs successful the provender manufacture successful the European Union. The company’s yearly income are astir €25 cardinal and full acquisition costs were €158.1 million. In April 2022, Symrise besides acquired 2 French companies – Essence Ciel with its subsidiary SFA Romani arsenic good arsenic Neroli Invest DL. These 2 high-end fragrance companies volition fortify Symrise’s presumption successful the country of luxury perfumes. Total payments were €127.6 cardinal and combined yearly income of some companies transcend €40 million.

Additionally, Symrise invested successful Swedencare AB – a supplier of premium, care, and wellness products for pets. Symrise spent a full magnitude of €318.2 cardinal and the concern was made successful the discourse of 2 superior increases by Swedencare.

These acquisitions besides had an interaction connected the equilibrium expanse and led to higher indebtedness levels. On June 30, 2022 – the latest information we person – the institution has €285 cardinal successful short-term borrowings arsenic good arsenic €2,386 cardinal successful semipermanent borrowings. When comparing the full indebtedness to the full equity of €3,655 cardinal we get a inactive acceptable debt-equity ratio of 0.73. And erstwhile comparing the full indebtedness to the EBIT of €559 cardinal successful fiscal 2021, it would instrumentality astir 4.8 years to repay the outstanding indebtedness – a alternatively agelong time. However, we should instrumentality into relationship that Symrise besides has €632 cardinal successful currency and currency equivalents. When taking that magnitude to repay outstanding debt, it would instrumentality lone astir 3.6 times fiscal 2021 EBIT to repay outstanding debt.

Balance expanse got a spot worse, but inactive solid

The equilibrium expanse worsened a spot successful the past fewer quarters, but determination is inactive nary crushed to worry. Although indebtedness levels are present higher, Symrise should beryllium capable to conscionable each its payments (according to the maturity profile).

Growth

While acquisitions are 1 mode to grow, Symrise is not conscionable increasing by acquisitions. Especially successful the past fewer quarters, the institution reported precocious integrated maturation rates and the concern is assured income volition turn betwixt 5% and 7% successful the adjacent fewer years and income are expected to beryllium betwixt €5.5 cardinal and €6.0 cardinal successful 2025.

Corporate strategy and mid-term people 2025

When looking astatine the maturation imaginable of the underlying market, studies spot the planetary perfume marketplace increasing with a CAGR of 5.9% until 2030. Other studies are seeing an yearly maturation complaint of 5.0% until 2028. The nutrient flavors marketplace is besides projected to turn with a CAGR of 4.64% until 2028. Other studies are seeing lone 3.6% maturation until 2030 for the planetary nutrient spirit marketplace portion we tin besides find studies expecting the planetary request for nutrient flavors to summation with a CAGR of 6.2%. Overall, we tin expect the underlying marketplace to turn astir 5% annually for the adjacent fewer years and Symrise should beryllium capable to execute its income maturation people of 5% to 7% successful the adjacent fewer years.

Intrinsic Value Calculation II

When lone looking astatine the price-earnings ratio, Symrise seems to beryllium overvalued and not a bully investment. However, elemental valuation metrics tin often beryllium misleading – alternatively a discount currency travel calculation should supply america with amended insights and assistance america to determine if a banal tin beryllium bought oregon not.

For 2025, let’s beryllium optimistic and presume €6 cardinal successful income and Symrise being capable to make 14% of income arsenic escaped currency travel – this would effect successful a escaped currency travel of €840 million. For the years pursuing 2025 we presume 7% yearly maturation – successful enactment with the company’s mid-term fiscal targets – followed by 6% maturation till perpetuity successful 10 years from now. For 2023 we presume astir €400 cardinal successful escaped currency travel arsenic the institution is close present lone capable to make astir 8% to 10% of income arsenic escaped currency flow. For fiscal 2024 we presume €620 cardinal successful escaped currency travel (midpoint betwixt present and 2025). When calculating with these assumptions, a 10% discount complaint and 139.77 cardinal outstanding shares, we get an intrinsic worth of €137.72 for Symrise and the banal would not beryllium overvalued arsenic the P/E ratio is suggesting but undervalued by astir 25%.

However, I spot immoderate problems with this optimistic calculation:

These assumptions are not including a recession, which volition astir apt deed the satellite successful 2023. And though Symrise is alternatively recession-resilient, it seems apt that Symrise won’t beryllium capable to summation margins successful specified a marketplace situation and make overmuch higher escaped currency flow.
Additionally, assuming 14% of income enduing up arsenic escaped currency travel is surely achievable for Symrise but it tin besides beryllium seen arsenic an optimistic assumption. In the years since 2016 it was little successful astir years.
And erstwhile comparing nett income to the escaped currency flow, it seems rather optimistic to presume €800 cardinal successful escaped currency travel successful 2 years from present erstwhile nett income was not higher than €375 cardinal truthful far. In the past fewer years, it was mostly betwixt €250 cardinal and €300 million.

So, I would beryllium alternatively cautious if these assumptions are realistic for Symrise and if the banal is truly undervalued.

Conclusion

In my opinion, Symrise is inactive a “Hold” and portion I would not merchantability the banal arsenic shareholder, I besides won’t bargain the banal close now. For me, the banal is inactive a spot excessively costly and surely not a bargain.

Editor's Note: This nonfiction discusses 1 oregon much securities that bash not commercialized connected a large U.S. exchange. Please beryllium alert of the risks associated with these stocks.

This nonfiction was written by

Daniel Schönberger illustration picture

Part-time capitalist and contributor for Seeking Alpha since 2016. My investigation is focused connected high-quality companies, that tin outperform the marketplace implicit the long-run owed to a competitory vantage (economic moat) and precocious levels of defensibility. Focused connected European and North American companies, but without constraints regarding marketplace capitalization (from ample headdress to tiny headdress companies). My world inheritance is successful sociology and I clasp a Master’s Degree successful Sociology (with main accent connected organizational and economical sociology) and a Bachelor’s Degree successful Sociology and History.I besides constitute astir investing, system and akin topics connected Medium: https://medium.com/@danielschonberger

Disclosure: I/we person a beneficial agelong presumption successful the shares of BAYZF either done banal ownership, options, oregon different derivatives. I wrote this nonfiction myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary concern narration with immoderate institution whose banal is mentioned successful this article.