Cost Savings And Pet Nutrition Trends Will Shape Future Earnings Trajectory

Catalysts

About Symrise

Symrise develops and manufactures flavors, fragrances, and functional ingredients for food, pet care, personal care, and health applications worldwide.

What are the underlying business or industry changes driving this perspective?

• Although Symrise is executing on a sizable cost saving and efficiency agenda, the increasing reliance on self help to lift margins risks reaching a ceiling if raw material and logistics markets tighten again. This could cap future EBITDA expansion and slow earnings growth.
• While global demand for science based health, wellness and metabolic solutions is rising, a more moderate market growth outlook and tougher prior year comparables may limit the pace at which innovations like Metabolic Health by Probi translate into sustained top line acceleration and higher revenue.
• Although pet ownership and premiumization remain supportive long term, ongoing price pressure and normalization in Pet Nutrition suggest that mix could shift toward lower value offerings. This would weigh on segment profitability and constrain group net margin improvement.
• Despite portfolio pruning in Aqua Feed and Terpene Ingredients, a sharper focus on high margin, lower capital intensity niches could also reduce diversification. This could leave Symrise more exposed to volatility in core categories such as Fine Fragrance and beverages and thereby increase earnings variability.
• While the One Symrise transformation and global procurement initiatives are improving gross margin and cash generation, the need to reinvest a meaningful share of identified savings into digitalization, R&D and commercial capabilities may delay visible operating leverage. This could limit near term expansion in free cash flow and EPS.

Assumptions

This narrative explores a more pessimistic perspective on Symrise compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Symrise's revenue will grow by 2.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 10.2% today to 10.6% in 3 years time.
• The bearish analysts expect earnings to reach €569.6 million (and earnings per share of €4.07) by about December 2028, up from €506.9 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €705.0 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, up from 18.5x today. This future PE is lower than the current PE for the GB Chemicals industry at 22.4x.
• The bearish analysts expect the number of shares outstanding to decline by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.65%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The multiyear ONE SYM Transformation, which is already driving a 250 basis point improvement in gross margin and EUR 40 million of 2025 cost savings, could continue to compound efficiencies and mix upgrades, leading to sustained EBITDA margin expansion above the current 21.7% and boosting earnings and free cash flow over time.
• Symrise is reaffirming midterm organic compounded annual growth of 5% to 7% and targeting business free cash flow of more than 14% of sales, so a cyclical demand recovery from the currently moderated 2% to 3% market growth, combined with its above market positioning, could accelerate revenue growth and push earnings higher than implied by a flat share price view.
• Portfolio optimization through divestments in Aqua Feed and Terpene Ingredients, and a sharper focus on high margin, low capital intensity niches, may structurally lift the group margin profile and capital efficiency, improving net margins and returns on invested capital in a way that supports a rerating of the equity.
• Long term secular demand for science based health, wellness and metabolic solutions, together with a growing innovation ecosystem including launches like Metabolic Health by Probi and the build out of the One Care division, could translate into faster growth in Taste, Nutrition & Health and Scent & Care, driving higher revenue and structurally stronger earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Symrise is €69.0, which represents up to two standard deviations below the consensus price target of €100.45. This valuation is based on what can be assumed as the expectations of Symrise's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €130.0, and the most bearish reporting a price target of just €69.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be €5.4 billion, earnings will come to €569.6 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of €67.2, the analyst price target of €69.0 is 2.6% 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.