Swiss-based Givaudan (OTCPK:GVDBF, OTCPK:GVDNY) is the world's largest manufacturer of fragrances and food flavorings. This stock gets little attention in the U.S. but is very profitable, has been growing earnings and sales, and the stock is up about six times since 2000. This spin-off from Roche is a buy but at the right price.
The stock trades for $2,235, there are 9.21 million shares, and the market cap is $20.58 billion. The dollar and Swiss franc are almost at parity so I am not going to translate. It takes $1.01 to buy one franc. Earnings per share are $77.54 and the price to earnings ratio is 28.8. The dividend is 58 and the dividend yield 2.6%. Just a little pricey.
Sales grew from $4.37 billion in 2013 to $5.05 billion last year. Not bad top line growth. Earnings per share grew from $52.83 to $77.54 over that time frame. Free cash flow was $617 million last year and the free cash flow yield was 3%. Return on equity was 21.08% and return on invested capital was 15.56%. Both nice profitability numbers. Ebitda margins are 21.6% and free cash flow margins 11.8%. Very high profit margins.
The balance sheet has $534 million in cash and $1.147 billion in receivables. The liability side shows $662 million in payables and $1.608 billion in debt. Very solvent. The company just spent $1.6 billion on flavor manufacturer Naturex.
The flavors division makes up 54% of sales. Of that: 13% is sweets like candy and gums, 15% dairy, 33% beverages, and 39% savory which is soups and snacks. The fragrance division makes up 46% of sales. Of that: 13% is fragrance ingredients, 18% fine fragrances which is name brand perfumes, and 69% consumer products like lotions and shampoos. According to the Annual Report: 27% of sales come from North America, 12% Latin America, 34% Europe/Africa/Middle East, and 27% Asia. That's an interesting mix that tilts towards developing markets. Givaudan has a 25% global share of fragrances and flavors. It is the biggest player. Think of all the roses that it takes to make a bottle of high end perfume. Kim Kardashian (I assume she has her own line of perfume) has to go to a company like this for the ingredients.
Givaudan sources 10,000 different raw materials and has 25,000 different contracts with various food and fragrance companies. I will briefly discuss a few industries to give you an idea of what the company does. Givaudan sources a large amount of vanilla from Madagascar. The company has 100 "flavorists" creating 1,000 different vanilla flavors. Its Vika division creates cheese ingredients such as powered cheese and processed cheeses. As more countries enact sugar taxes on beverages, Givaudan is coming up with new sweeteners. The company has grown through M&A and has purchased the flavoring divisions from Nestle (OTCPK:NSRGY) and ConAg (CAG).
What I really wanted to know is what companies are using Givaudan's products? I was able to find a few examples. Abercrombie & Fitch uses its fragrances to makes its stores smell more inviting. The Imperial Hotel in New Delhi uses Givaudan's jasmine to spruce up its lobby. It looks like major players such as Procter & Gamble, Unilever, Nestlé, Danone all use the company's flavors and scents in everything from food to laundry detergent. An old article from the New Yorker notes that Coca-Cola gets its vanilla flavor from Givaudan. An old article from The Economist noted that the company manufactured many of the scents for Hugo Boss.
It's difficult to find who uses Givaudan as manufacturers want consumers to think that they make everything in house. Or, they want consumers to think what they are eating or smelling is natural, which in many cases it is. It's tough to find a lot of information on Givaudan. It's only mentioned once in a search in the Wall Street Journal. . Hard to believe that there is such little information on a company with over a $20 billion market cap.
So is the stock a buy? I think it's a little pricey but it's a solid blue chip that gets little recognition in the U.S. Profit margins are high and return on equity is nice. Free cash flow is high too. The stock has been about a six-bagger since 2000. Put Givaudan on your radar and buy when it goes on sale. As the planet's seven plus billion population grows, Givaudan will grow too.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.