Bloomful Splash Launch Will Drive Future Success In Fragrance & Beauty

Key Takeaways

• Strategic leadership changes and portfolio expansions may drive growth in revenue and earnings.
  
• Innovation and sustainable practices could enhance product differentiation and improve operational efficiencies and margins.
  
• Rising input costs, leadership changes, and geopolitical volatility pose risks to Givaudan's profitability and revenue growth despite diversification and currency hedges.

Catalysts

Manufactures, supplies, and sells fragrance, beauty, taste, and wellbeing products to the consumer goods industry.

• Givaudan's appointment of Antoine Khalil as President of the Taste & Wellbeing division, combined with his extensive experience, is expected to further integrate strategic acquisitions and portfolio expansions, potentially driving revenue and earnings growth.
  
• The company's innovation in Fragrance & Beauty, such as Bloomful Splash and new technology launches, may enhance consumer product differentiation and drive future revenue increases.
  
• Givaudan's strategic expansion into high-growth markets, with continued double-digit growth, especially in regions like Southeast Asia and Brazil, is likely to propel future revenue growth.
  
• Sustainable practices and responsible sourcing goals, such as the significant reduction in emissions and use of renewable energy, could improve operational efficiencies and margins in the medium to long term.
  
• Continued focus on operational excellence and footprint optimization, as well as a strong cash flow position, could contribute positively to EBITDA margins and overall financial health in upcoming years.

Givaudan Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Givaudan's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.7% today to 15.4% in 3 years time.
• Analysts expect earnings to reach CHF 1.3 billion (and earnings per share of CHF 143.58) by about January 2028, up from CHF 1.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.0x on those 2028 earnings, down from 33.7x today. This future PE is lower than the current PE for the GB Chemicals industry at 32.8x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.44%, as per the Simply Wall St company report.

Givaudan Future Earnings Per Share Growth

Risks

• The potential increase in input costs, particularly from natural ingredients like patchouli and citrus, could pressure Givaudan's margins and affect profitability in 2025.
  
• The transition in executive leadership within the Taste & Wellbeing division may introduce strategic and operational risks, potentially disrupting performance and impacting earnings.
  
• The relatively high growth achieved in 2024 partly benefited from a lower comparison base due to weaker performance in 2023, which might not be sustained, possibly leading to challenges in maintaining revenue growth.
  
• Increased geopolitical and economic volatility could pose risks to the business, especially in high-growth markets, impacting revenue forecasts and operational costs.
  
• While Givaudan has a well-diversified portfolio and natural currency hedges, fluctuations in exchange rates, such as those affecting Latin America, could impact net income due to translation effects.

Valuation

• The analysts have a consensus price target of CHF4154.2 for Givaudan based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF5100.0, and the most bearish reporting a price target of just CHF3330.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF8.6 billion, earnings will come to CHF1.3 billion, and it would be trading on a PE ratio of 32.0x, assuming you use a discount rate of 4.4%.
• Given the current share price of CHF3983.0, the analyst's price target of CHF4154.2 is 4.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.