Barry Callebaut's Showing In-Line with Expectations

On May 11, wide-moat Barry Callebaut hosted a capital markets day highlighting the growth opportunities ahead (emerging markets, outsourcing, Gourmet & Specialties), cost leadership credentials, examples of innovations across the different functions of the group, and various sustainability solutions and initiatives, all in-line with our thesis and outlook. The company also had an opportunity to showcase the strong financial performance achieved over the last decade (5.7% 10-year average volume growth vs. 0.6% for the underlying market and a corresponding 8.2% average EBIT growth over the same period, solid balance sheet with a Net Debt to EBITDA at 1.7 times). Importantly, management reiterated mid-term guidance (5% to 7% volume growth versus 6.1% in our model, and EBIT above volume growth by fiscal 2023 ). We expect the fast recovery of the gourmet and emerging-market segments to continue to positively affect margins, as these are materially more profitable than the rest of the group. We do not expect to materially alter our CHF 2,400 fair value estimate for the firm. With shares trading at a 10% discount to our fair value estimate, and the chocolate business' defensive characteristics (both against inflation concerns and recessionary fears), we think Barry Callebaut makes a compelling investment case for the long-term-oriented investor.