Novozymes Raises Guidance, but Market Was Hoping for More; Shares Fairly Valued

Wide-moat Novozymes pre-released third-quarter sales and raised 2022 guidance. Specifically, third-quarter organic revenue growth was 6%, while 2022 organic revenue growth guidance was raised to 8%-9% from 6%-8%. Despite the guidance upgrade, shares were down around 4%-5% intraday. The company compiled consensus indicated expectations of 7.8% organic growth in the third quarter and 8.6% organic growth for the year, already above management’s previous guidance. The composition of growth in the third quarter likely also spooked investors as the vast majority of growth came from bioenergy, at 32%, which is a highly cyclical business. In contrast, the more stable areas of household care and food, beverages, and human health posted disappointing organic growth of negative 1% and 2%, respectively, well below consensus expectations. Furthermore, agriculture, animal health, and nutrition posted a very weak negative 7% organic growth and is proving to be incredibly volatile. Timing-related effects were said to have affected all of these businesses. The EBIT margin for the third quarter is expected to be a relatively high 30%, but this was artificially boosted by the nonrecurring accounting gain of DKK 200 million related to 21st.BIO. Our 2022 organic growth forecast is a relatively conservative 7.6%, and we don’t expect to make any material changes to our DKK 375 fair value estimate after reviewing the sales update. At current levels, the shares look fairly valued.