DSM will host its annual Capital Market Days at the end of this week, on 29 and 30 September.
We remind that DSM presented new 3-5 year ambitions last year at its Capital Market Days. These ambitions included the 2013 targets of reaching a € 1.4-1.6bn EBITDA and a (pre-tax) ROCE target of >15% by 2013 (vs. € 834m and 8.3%, respectively, in 2009 and € 1,161m and 14.6%, respectively, in 2010). Targets for 2015 include annual organic top line growth of 5-7% with Nutrition growing 2% above global GDP and Performance Materials growing double the GDP level. Sales from innovation should grow their share in total from 12% in 2010 to 20% by 2015 while emerging markets should grow their share in total from approximately one third in 2010 to 50% by 2015. Furthermore, the company provided following divisional EBITDA margin targets for 2015: 20-23% for Nutrition, 15-20% for Pharma (after execution of the partnering strategy), at least 17% for Performance Materials and an over the cycle margin of approximately 14% for Polymer Intermediates.
We do not expect DSM to announce major changes to the above-mentioned medium-term ambitions at this year’s Capital Market Days. Nevertheless, we hope to get an update on current trading conditions. With this respect, we remind that DSM said at the time of the 2Q11 results release that 2011 would be a strong year, with progress towards achieving the 2013 EBITDA target (we forecast EBITDA to increase from € 1,161m in 2010 to € 1,278m in 2011), despite increased uncertainty on the global economy. We remind that DSM hinted that the pressure from higher raw materials and energy costs witnessed during 1H11 was expected to ease during 2H11. The outlook comments for the various divisions given at the time of the 2Q results release were as follows:
Nutrition: DSM hinted at a much higher FY11 EBITDA although this includes Martek (forecast to post roughly € 80m in 2011). We forecast € 739m EBITDA vs. € 684m in 2010.
Pharma: guidance for a lower FY11 result. We forecast € 36m EBITDA vs. € 61m in 2010.
Performance Materials: guided to post a much better FY11 result. 2H11 volumes were guided to come in below the 1H11 level on usual seasonality. We forecast € 319m EBITDA in 2011 vs. € 283m in 2010.
Polymers Intermediates: hinted to post an excellent FY result although margins might decline from the very high current level. We forecast € 335m EBITDA in 2011 vs. € 223m in 2010.
With the strategic direction (dual-track strategy of being a Life and Material Sciences Company) set clear and no changes expected there, the key focus is on the short-term outlook and trading conditions. We still like DSM for the defensiveness offered by itsNutrition division (and which represents approximately 58% of our 2011 group EBITDA forecast) as well as the attractive valuation (EV/REBITDA11 of 4.3x). We stick to our BUY rating although we decided to slightly lower our target price (from € 55 to € 50).