World's leading manufacturer of cocoa and chocolate products, Barry Callebaut was born in 1996 from the merger of the Belgian company Callebaut (founded in 1850) and the French company Cacao Barry (founded in 1842). In 2012 it acquired Petra Foods, a Singapore-based company, for $950 million.
Barry Callebaut does not sell directly to consumers. Its clients are companies: food industry, global and local manufacturers, artisans and professional users of chocolate, such as chocolatiers, pastry chefs, bakers, hoteliers, restaurateurs or caterers.
Barry Callebaut supplies giants such as Nestlé, Danone, Unilever, Ferrero, Mondelez and Hershey. The company employs around 11,000 people and its market capitalization exceeds CHF 9 billion. 50.1% of the share capital is held by the Jacobs holding company.
Barry Callebaut is in 25% of cocoa and chocolate products consumed worldwide!
The Zurich chocolatier's operations are organized into three segments:
- Cocoa (Global Cocoa)
- Industrial clients
- Gourmet & Specialties.
At the end of February 2018 (which corresponds to the end of the second quarter of the 2017/2018 financial year for Barry Callebaut), the net profit margin stood at 4.9% and the return on equity at 7.8%. This is not extraordinary, but acceptable for the food sector.
At the same time, the industrial chocolate maker had 35.8% of equity.
The dividend yield is very low (currently 1.1%) and the dividend is hardly increasing. Fortunately, the payout ratio of 36.3% is reasonable.
Barry Callebaut has decided to put more emphasis on cash flow, which should gradually improve.
Earnings per share are expected to be CHF 64 this year, which corresponds to the current price of 1863 at a PER of 29!
Despite Barry Callebaut's qualities and good predictability, This valuation is much too high and above its historical average. It must be said that the action gained more than 50% in 2017 and is currently correcting this excess.
This is why I would wait for prices close to 1400 fr (i.e. around 25% less) to initiate a position.
To make the wait more pleasant, you can nibble on a few squares of... pink chocolate:
https://m.tdg.ch/articles/59b25520ab5c3763f9000001
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Thank you dividinde for this beautiful analysis.
This is certainly a company of very high quality. The F-Score (Piotroski) of 8 and the Z-Score (Altman) of 4.2 confirm this.
The dividend is indeed low, but as you say, the payout ratio relative to earnings is very conservative, and this is also the case relative to FCF (44%).
But as you conclude, the current price is really too high. You can spin it however you want, whether it is in relation to earnings, FCF, sales, dividends or book value, Barry Callebaut is too expensive.
Unfortunately, it shares this flaw with almost all stocks today.
By the way, how can we explain that this merger of a Belgian and a Frenchman ended up in Zurich?!
I don't know why Barry Callebaut chose Switzerland, but I can imagine it was for one of these reasons:
– Choose a country other than France or Belgium so as not to favor one country over the other following the merger.
– Switzerland’s reputation as the “country of chocolate” (a very rich and long history with names such as Nestlé, Cailler, Suchard, Lindt, Sprüngli, Favarger, Kohler, Munz, Tobler,…)
– Taxes… 😉
Yes, especially taxes!
☺
By the way, do you know of a site that presents a ranking of Swiss stocks according to their F-Score or Z-Score?
No, sorry.
You should have fun doing it… But there’s work to be done…