Strong Close to the Year for Barry Callebaut With Confidence on Midterm Guidance; Shares Cheap

Wide-moat Barry Callebaut reported fiscal 2022 results, with group volumes up 5.3% (chocolate business up 4.5% excluding the European Chocolate Company acquisition), higher than company-compiled consensus (volume growth up 5%). Within this the key drivers were the gourmet and emerging-market segments, both continued strong recoveries (gourmet up 24.3% in the year), emerging markets also grew robustly by 7.9%, and outsourcing was up by 4.8%. We expect the fast recovery of the gourmet and emerging-market segments to continue to have a positive effect on margins, as these are more profitable than the rest of the group. The net one-off negative impact related to the salmonella incident at the Wieze factory was CHF 76.9 million on operating profit; excluding this, it comes in higher than consensus (recurring EBIT was CHF 624.7 million versus CHF 611 million expected). More importantly, despite the negative impact of the Wieze factory, management reiterated midterm guidance (5% to 7% volume growth and EBIT above volume growth by fiscal 2023 versus 6.1% in our model). We maintain our CHF 2,400 fair value estimate. With shares trading in 5-star territory, and the chocolate business' defensive characteristics (against inflation concerns and recessionary fears), we think Barry Callebaut makes a compelling investment case for defensive long-term-oriented investors.