Lindt's Bittersweet Position

| About: Lindt & (LDSVF)

Stock price: SF26470 ($2539 USD)

Conclusion: Lindt’s (OTCPK:LDSVF) unique premium positioning and long term earnings growth potential are largely priced in. Lindt’s stock price exceeds our valuation range of SF22-23000 per share.

2009 sales: SF2.52bn (-1.9% reported), up 2.3% like for like. 2009 EBIT at the low end of the SF260-280m range. 2010 guidance: H1 to remain difficult.

2% growth (mostly pricing) at a time when competitors are reporting downtrading from consumers is not so bad. Lindt succeeded in gaining share in the US market, which is still underdeveloped compared with Western European demand which suffers from negative consumer sentiment. Growth in 2010 should once again be held back by an adverse consumer environment. In addition Lindt remains underexposed to emerging markets.

Marginwise, we expect Lindt to continue to suffer from high cocoa prices, up 30% in a year. Material costs could go up by 200bp-300bp relative to sales.
In addition, we expect market investments to remain high (above 30% of sales), in order to sustain Lindt’s premium positioning. As a result, we think the expected return in 2010 to 2008 earnings level, following our estimated 27% decline in 2009 EPS looks highly challenging.

23xP/E based on 2010 forecast looks very generous considering the low visibility for 2010. EV / EBITDA multiple is almost in line with the 13x multiple paid by Kraft (KFT) for Cadbury (CBY). Although we understand why Lindt should incorporate some speculative premium, we feel it is largely priced in.