On Tuesday, BofA Securities issued a new coverage on Barry Callebaut AG (BARN:SW) (OTC: BYCBF), the world's leading chocolate and cocoa product manufacturer. The firm assigned an Underperform rating to the company, with a price target set at CHF 1,350. This target suggests a 17% potential downside from the company's current market price.
The decision by BofA Securities to rate Barry Callebaut as Underperform is based on several factors that could challenge the company in the short term. Among these is the concern over record-high cocoa prices, which have doubled since the company's Capital Markets Day, potentially affecting near-term volume growth and profitability. The analyst noted that cocoa prices at $7,500 could lead to a decrease in volume growth by -0.2%/+0.2% in the fiscal years 2024-2025 and increase the company's working capital requirements.
Additionally, the implementation of Barry Callebaut's 'BC Next Level' strategic plan, introduced in November, is expected to face delays. The business environment has shifted significantly since the announcement six months ago, which may impact the speed and effectiveness of the plan's rollout.
The firm also anticipates that Barry Callebaut's short-term free cash flow will be under pressure, projecting a CHF 1.4 billion negative free cash flow for the fiscal year 2024. This strain is attributed to the increased working capital needs and the capital expenditures required for the 'BC Next Level' plan, which are estimated to total CHF 1.3 billion over fiscal years 2024 to 2026.
The BofA Securities analysis concludes with a note on earnings per share (EPS) estimates for Barry Callebaut, which are set below the consensus for the fiscal years 2024 to 2026 by 0%, 11%, and 9%, respectively. This reflects the firm's cautious stance on the company's financial performance in the coming years.
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