Lindt Earnings’ Shares Pricey

Lindt&Spruengli’s LISN, or Lindt’s, 2022 annual result offered little surprise on the whole, with the wide-moat stock delivering EBIT of CHF 750 million and EPS of CHF 2,400, broadly aligning with our estimates. Still, with the North American operating margin improvement tracking ahead of our prior expectations, we increase our fair value estimate by 2.5% to CHF 84,000. A time value of money adjustment also contributes to our upwardly revised valuation. Lindt shares continue to screen expensively, trading at a price/fair value estimate of 1.21.

Importantly, Lindt’s North America operating margin firmed by 3.2 percentage points to 10.9% as a result of strong pricing actions, as well as the company addressing staffing and logistic issues at Russell Stover that had previously resulted in severe factory underutilization. Indeed, the strong margin improvement for the segment was the major contributor to the 90 basis points operating margin improvement for the group to 15% in 2022.

While we’d anticipated Lindt’s North American segment would benefit from previously announced supply chain efficiency measures, operating margin improvement is tracking ahead of our prior expectations. Further, we expect other productivity initiatives -- including the closing of unprofitable stores and outsourcing of merchandising -- in conjunction with operating leverage, to support a stronger uplift in operating margin than we’d previously forecast. Consequently, we now expect a further 25 basis points average improvement in operating margin per annum and an EBIT margin of 16.3% for the group in 2027, compared to the 40 basis points that we expected prior between 2021 and 2026, resulting in an EBIT margin of 16.0% by 2026.