DSM hosted a Nutrition conference yesterday. The goal was to provide more insight in the trends, challenges and opportunities affecting DSM and the Nutrition industry in general. DSM did refrain from giving precise additional quantitative data on production capacities or revenues for the various vitamins, blends or on some of the innovative new products, nor did the company offer additional insight in the breakdown of profitability per product or segment. The company did repeat the overall target of a GDP +2% growth ambition for the overall Nutrition cluster, which is no surprise.
Speakers inthe conference included both people from inside DSM like Dr Gilbert Weber (Corporate Scientist Animal Nutrition and Health), Peter Nitze (President DSM Nutritional Lipids) and Dr Manfred Eggersdorfer (Senior VP Nutrition Science and Advocacy) as well as Nutritional experts outside DSM like Professor Hannelore Daniel (TU Munich), Professor Colin Whitehead (Roslin Institute) and Professor Calder (University of Southampton).
The Nutrition industry in general is facing challenges/opportunities in the form of agrowing world population with changing eating habits (more meat consumption in emerging markets), the scarcity of arable land, increasing obesity and health problems, an aging of population. All of this increases the need for new food production systems and improved food qualities.
DSM did not offer a precise insight in its full innovation pipeline in Animal Nutrition, because of the perceived risk of competitive response if it would disclose where it is focusing its efforts on. Overall the company claimedto have 30 specific projects in the innovation pipeline in Animal Nutrition. The company did not provide detailed insight in growth ambitions for the various products but repeated an earlier rule of thumb statement that in Nutrition average peak sales of new innovations are around € 20-40m per product. The company did provide some examples of recently developed products. One example is Ronozyme Proact, which was jointly developed with Novozymes, and which increases protein digestibility in poultry while offering a return on investment for customers of up to 3/1. Another example is Crina Poultry Plus, which offers an effective mixture between essential oil compounds (which stimulates the secretion of endogenous digestive enzymes) and benzoic acid (which triggers an acidification of the gut while being effective against E coli and salmonella). DSM claims that the average return on investment for its customers of this product is 3.7/1. In Human Nutrition the company gave an overview of vitamin deficiency in both developing and developed parts of the world and some examples of the impact it has on social security systems.
The Nutrition Conference did not offer many additional insights that are useful for modelling. Nevertheless, the overall story remains quite convincing in our opinion. Significant growth opportunities exist in both Animal and Human Nutrition and DSM is very well placed in this industry, given its size, fully integrated model (from production of bulk vitamins into blends and premixes). Based on the perceived defensiveness of Nutrition and the attractive valuation, we stick to our BUY rating and 50 target price for now.