1/ Specialty cnsmr ingredient (SCI) cos r prt of an oligopolistic mkt wid ~$90bn TAM grwing @ 4%-5%.
SCI stks hv bn lng-trm compounders - outper4mng chem. peers, S&P 500, & consumer staples.
$GIVN, $CHR.CO, $SYIEY r best SCI plyrs (all lstd in Europe).
👇Rsns 4 outper4mance
SCI stks hv bn lng-trm compounders - outper4mng chem. peers, S&P 500, & consumer staples.
$GIVN, $CHR.CO, $SYIEY r best SCI plyrs (all lstd in Europe).
👇Rsns 4 outper4mance
2/ Rsn #1: Entry Barriers
- CPG plyrs work wid trusted suppliers. Reputational damage of any quality issue is enormous.
- SCI r 3%-5% of total COGS of a product. Once a given ingredient is formulated into a consumer product, recipe stays same 4 life of product.
- CPG plyrs work wid trusted suppliers. Reputational damage of any quality issue is enormous.
- SCI r 3%-5% of total COGS of a product. Once a given ingredient is formulated into a consumer product, recipe stays same 4 life of product.
3/ Rsn #2: Dominate their niches (70% of mkt controlled by 4 plyrs)
Mst SCI cos dominate a niche & invest heavily in supply chain/ R&D 2 maintain that dominance.
$GIVN: Fine Fragrances
$CHR.CO: Cultures & Enzymes
$SYIEY: Pet fd, menthol, flavor & fragrances (F&F)
$IFF: F&F
Mst SCI cos dominate a niche & invest heavily in supply chain/ R&D 2 maintain that dominance.
$GIVN: Fine Fragrances
$CHR.CO: Cultures & Enzymes
$SYIEY: Pet fd, menthol, flavor & fragrances (F&F)
$IFF: F&F
4/ Rsn #3: Poised 2 take advtg of chngng consumer preferences.
Natural/organic trends hv bn tailwind 4 SCI cos. SCI provides natural alternatives 2 synthetic ingredients.
Replacing synthetic color wid natural is nt simple. Tech is needed in mkng natural clrs shelf stable.
Natural/organic trends hv bn tailwind 4 SCI cos. SCI provides natural alternatives 2 synthetic ingredients.
Replacing synthetic color wid natural is nt simple. Tech is needed in mkng natural clrs shelf stable.
5/ Rsn #4: Innovation partners of CPG
Innovation remains critical 4 long-term success of CPG cos as brand power hs weakened & retailers like $WMT, $COST, & $KR want CPG plyrs 2 do more or else get replaced by pvt label products.
SCI provides speed 2 mkt thru R&D capabilities.
Innovation remains critical 4 long-term success of CPG cos as brand power hs weakened & retailers like $WMT, $COST, & $KR want CPG plyrs 2 do more or else get replaced by pvt label products.
SCI provides speed 2 mkt thru R&D capabilities.
6/ Rsn #6: Industry tailwinds hv allowed SCI plyrs to grow revenues ahead of staples peers such as $PG, $NESN, $MDLZ, $K, $CLX, $SJM, $KHC, $CPB, $KMB, $JDEP.
Outperformance wl continue as long-term thesis on SCI plyrs hold true today.
Outperformance wl continue as long-term thesis on SCI plyrs hold true today.
7/ Some other attributes - $GIVN, $CHR.CO, $SYIEY & $IFF r capital intensive biz models as inventory levels r always high 2 ensure supply security to big CPG plyrs (bt this also mks growth vry defensible)
Pass thru pricing cn mk mrgn % more volatile but EBIT $ is more stable.
Pass thru pricing cn mk mrgn % more volatile but EBIT $ is more stable.
END/ Healthy EBITDA/ EBIT mrgN & org grwth ahead of stpls hv led 2 40%-50% re-rtng of sector. SCI cos usd 2 trd @ chemical multiples 5-7 yrs ago.
10 yr return 4 SCI
$GIVN: 305%
$CHR.CO: 618%
$SYIEY: 541%
S&P500: 235%
$XLP: 127%
P.S. - I dn't like $IFF due 2 execution issues.
10 yr return 4 SCI
$GIVN: 305%
$CHR.CO: 618%
$SYIEY: 541%
S&P500: 235%
$XLP: 127%
P.S. - I dn't like $IFF due 2 execution issues.
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