Barry Callebaut Reports a Solid Q2; Inflationary Pressures Still Light; Shares Attractive

Wide-moat Barry Callebaut reported fiscal 2022 half-year results, with group sales volumes up 8.7% (7.9% excluding the European Chocolate Company, or ECC, acquisition), higher than company-compiled consensus estimates (around 8.2%). Within this, the key drivers of top- and bottom-line growth—the gourmet and emerging-market segments—continued their strong recovery in the second quarter (gourmet up 29.5% partly due to the ECC acquisition) with emerging markets also growing robustly by 8.7%. Recurring operating profit was in line with company-compiled consensus (CHF 318.1 million versus CHF 319.2 million for consensus). We expect the fast recovery of the gourmet and emerging-market segments to continue to have a positive effect on margins, as these are materially more profitable than the rest of the group. Management reiterated midterm guidance (5% to 7% volume growth and EBIT above volume growth by fiscal 2023 versus 6.1% in our model). We do not expect to materially alter our CHF 2,400 fair value estimate for the firm. With shares trading at more than a 10% discount to our fair value estimate, and the chocolate business' defensive characteristics (both against inflation concerns and recessionary fears), we think Barry Callebaut makes a compelling investment case for the long-term-oriented investor.