After performing a regression analysis of the company, Nomura highlighted the strong performance of DSM Nutritional Products in recommending the company as a “buy” stock.
“While there is a reasonable correlation between the direction of changes in commodity vitamin prices and the direction of change of the Nutrition margin, the degree of change is low,” Nomura analyst Jennifer Barker wrote.
She added: “This makes sense because commodity vitamins are peripheral for DSM, being only 12 per cent of proforma sales. We estimate a sharp fall (-80 per cent) of fat-soluble vitamin A and E prices would be needed to drive Nutrition’s EBITDA margin below DSM’s target floor of 20 per cent. We believe that this is highly unlikely because Vitamin A and E production is highly concentrated with high barriers to entry. Also, rising Chinese energy costs and exchange rates mitigate against falling vitamin prices.”
Martek deal
Some analysts pointed to the fact DSM was a takeover target before its purchase of Martek Biosciences in December, with DuPont rumoured to have eyed the life sciences company as a potential acquisition target before it paid €4.8bn for Danisco.
DSM signalled predatory ambitions when it paid €829m for omega-3 player Martek, with ratings agencies sizing the Dutch company’s war chest for further acquisitions at several times that.
That acquisition – if accepted as it is expected to be – represented a multiple of 8.5 times the EBITDA of Martek compared to 12.8 times EBITDA for the DuPont-Danisco deal.