DAVY VIEW

DSM’s acquisition (merger structure) of Firmenich fits with its growth strategy and decadal transformation and creates a formidable global supply chain with access to considerable R&D resources. The merger is pitched as low risk, with revenue synergies heavily tilted to one segment. Notably, profit growth at Firmenich (2017-2022) has materially lagged the sector. With a return on invested capital (ROIC) profile of 7-8% (including goodwill) for the merged entity, we believe DSM will have to revisit cost synergies to enhance returns. We launch our pro-forma model with a share price target of €135 and retain our ‘Outperform’ rating.