Lindt's strategy: premium chocolate against the rise of cocoa

However, this is the past. A time span where - in the final part - the price of cocoa itself had fallen. What, on the other hand, is the outlook for the second half of the year in which, it should be emphasised, 'the food of the gods' hit new annual highs? In the presentation of the figures to 30/6/2024, the company set out its guidance for the entire year. This provides for organic growth of 6-8%. The Ebit margin, on the other hand, is expected to rise at the upper end of the range between 20 and 40 basis points compared to the previous year. Finally, with reference to the medium term, the group was confident in confirming the rise of the Ebit margin between 20 and 40 basis points per year.

The targets, also due to the indicated recovery in cocoa prices, are ambitious. So much so, that consensus estimates, according to FacSet, predict a smaller increase in revenues (+5.5%). Some operators, however, claim that such targets are achievable. Ubs - which is a shareholder of Lindt - has a higher 2024 revenue forecast (+7%). The investment bank puts forward several arguments in support of its assessment. First, it points out that about 80% of the company's products are so-called 'indulgence/gift' products. That is, they are premium chocolates (et similia). Not only that: on the one hand - it is explained - the typical customer buys the company's 'delicacies' once every 4-8 weeks; on the other hand, 50% of Lindt's sales are linked to the realisation (by the purchaser) of a gift. Well: the mix of conditions described makes product demand highly inelastic with respect to price dynamics. Hence: the transfer of higher raw material charges to the final price list does not - beyond a certain limit - impact volumes. More. Ubs also points out that Lindt & Sprungli's business is more exposed to the seasonality resulting from holidays (Christmas and Easter). Given the propensity to consume chocolate during these periods, this further facilitates the Swiss company's business. The positive outlook for 2024 is also confirmed by Bloomberg Intelligence, which, recalling the power of price leverage, estimates that the increase in Ebitda margin of between 20 and 40 basis points is reasonable. However, there are those who instead, in the medium term, raise doubts. This is the case of JP Morgan. The US institute, emphasising the increase in external pressures in 2025, states that in order to hit the target of an annual increase in the ratio of Ebitda to revenue, there will have to be a double-digit price increase. This tests the company's ability to keep sales volumes intact.

But it is not just a question of price leverage, high-end chocolate or operational efficiency. Another aspect that the saver looks at - also because it reduces risk and facilitates business - is geographical articulation. Lindt & Sprungli divides its business into three areas: Europe, America and Rest of the World. In the first half of 2024, the Old Continent - where the company realises almost half of its sales - was characterised by organic growth of 9.3%. North America, for its part, saw business increase by only 3%. Here, however," the company explains, "two events are being discounted: the first is the reduction in inventory by customers; the second concerns the different dates of the Easter holiday in 2023 and 2024. Without the two events, the increase would have been 6%. That being said, the group estimates that the segment could accelerate in the second half of the year. Finally: the Rest of the World. Sales in these markets - again in the first half of the year - stood at CHF 293 million. This figure implies organic expansion of 10%. A march that can be maintained? The group responds positively and estimates - again at the time of publication of the half-yearly report - double-digit percentage growth for the medium term.

So far some suggestions on business and prospects. What, however, is the performance of Lindt & Sprungli on the stock exchange in this context? The company, which is listed on the Six Swiss Exchange, has a weak short-term performance. Since the beginning of the year, the share price has gained 0.4% in Swiss franc terms to 28/11/2024 (+1.75% with the re-invested dividend). Over the two-year period, however, the rise is 0.9% (+3.4%). Over the medium term (last three years), the trend is negative (-10.3%). Finally, over the longer term, performance returns are positive by 33.6% (5 years) and 110.7% (10 years) respectively. With the total return being 143.17% in the latter case. The scenario described -obviously- should come as no surprise. The food sector is a sector for chest of drawers. Do-it-yourself savers who must pay attention to the fact that the prospective P/e on 2024, calculated by Bloomberg, is 35.3 (between 2021 and 2023 the indicator fluctuated between 28.9 and 66.3). The price-to-book value, for its part, is 4.49. A value, the latter, not so low. Consequently, the share should be handled with care.

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