IFF
🌍 IFF operates a dominant, reputation-based business providing essential ingredients for food and fragrances, benefiting from global middle-class growth and stable demand (70% recurring revenue).
🏭 The company’s global network of 150 local manufacturing plants minimizes tariff impacts and ensures proximity to customers.
📉 Trading below its historical valuation (17x P/E vs. 21x+ average) despite solid recent performance and positive growth outlook for 2025, IFF presents a potential value opportunity.
@Artedeinvertir:
“The fourth company, which is also very interesting, is International Flavors and Fragrances. As you can guess from the name, the company is dedicated to manufacturing artificial or natural ingredients and also fragrances and aromas that go, well, for example, in perfumes or even for the food industry to give certain characteristics to products, colors, preservatives, and so on. And it’s a dominant company, and it’s a sector where many of these companies have done very well. Here in Europe, there is a small company called Robertet. It’s very little known, but it’s one of the best businesses that exist in France. It manufactures all the essential ingredients for making perfumes. All the high perfumery of Europe, from luxury brands and others, eh, all buy from this company. It’s a company with centuries of history, I mean, almost from the Renaissance era and all that, it already existed or operated in a very specific region of France, and it’s a business that has associated with it an aura, a very high tradition, it charges very high prices, nobody can compete against them, it has the advantage that it’s a very exclusive product and that it’s essential for creating a perfume or a fragrance, and that the cost is very low within, well, if a fragrance sells for €100 a bottle, well maybe the part of the ingredient that Robertet manufactures could be worth €3, €5, €1, it’s very little in the total cost, but it’s what obviously gives it that aroma. Okay? This same analyst commented that a very interesting part of IFF is that 50% of its income comes from the food sector, which is very stable. Therefore, if your client has stable production, well, you will also have quite stable sales. And he says, ‘And if we also add the health and biosciences sector, its stable income amounts to almost 70% of the company can be considered highly recurrent.’ It’s in the portfolio of six investors within Data Roma, of these six super investors, and eh, since late 2024, the shares had dropped, that’s why many of these investors are investing now, because they are cheaper than in the past, the shares had dropped, however, well, they are starting to rebound. The company is the largest in this sector. It has sales of 11 billion, high profit margins, 20% for an industrial company is really good. And this business, as we said before, is a very good business and has done very well in the stock market for all these companies in this sector because they are businesses based on reputation. Think that these artificial ingredients will go inside food products that are regulated. Any scandal, alteration, poisoning, eh, would be extremely serious for the clients, which are, for example, companies like Danone, well, could be a client of this company. If there were any type of problem with the yogurts or whatever, well, it would be very serious. Therefore, clients don’t take risks, and that’s why they decide to consume the company’s products. There is another advantage, which is the low cost for the client, hm, or it’s not very high, but it’s essential for the manufacturing we mentioned before, like the perfume issue. So, the client, when looking to reduce costs, well, can try to reduce in other areas. Even the packaging where the product goes is usually more expensive. So this company has little probability that its products are under the scrutiny of the cost department. The increase of the middle class worldwide benefits it because it’s a totally international company, operates on all continents, in most developed or emerging countries, and in the end, the more middle class there is, which is incorporating especially in Asia, the more demand there is for all these types of products, so that also benefits it. And the cost of raw materials regarding tariffs is very low because even if certain raw materials are imported to make these products, it’s very reduced, and eh, it also has local plants in each region, so it doesn’t have to import or export a large part of the ingredients or final products it manufactures regarding tariffs. In fact, here you can see how it has 150 factories distributed around the world, because in the end, it’s not very profitable, or in the end, eh, the ingredients it manufactures or the chemical products, because most are chemicals or derivatives, eh, have a high weight and high volume, so they cannot be transported very far. So, this sector, like the packaging sector, needs to have local plants. That’s why you see here that the company has hundreds. So, tariffs have a null effect, because, well, for example, in the United States, it manufactures internally, in Europe, what is consumed in each country or each region. It has very powerful statistics, and this gives an idea of how powerful the company is. Practically one out of every two ice creams manufactured in the world contain IFF ingredients. 20% of beers worldwide have enzymes manufactured by IFF. One out of every three yogurts. Eh, 25% of poultry production worldwide also has IFF enzymes. Now they are getting heavily into the topic of probiotics, healthier, balanced food, or nutritional bars, they also have proteins that the company manufactures. So, well, it’s managing to diversify into new growth sectors. This last year, the company did quite well. In terms of sales, it grew 6%. Reported is zero, but that’s due to the effect of the strong appreciation the dollar had. But now, in fact, the depreciation of the dollar benefits all these companies that report their financial figures in dollars. Profits grew 16%, profit margins expanded, which indicates that its competitive position is improving. And best of all is that recently, a few days ago, for 2025, despite the global problems, it said it will grow again by 1 to 4% because, well, it’s still growth for a company that is stable, that historically doesn’t have very high growth either, but in terms of EBITDA, it will grow more, it will grow by 5 to 10%, so in that sense, well, the company estimates a null impact from tariffs. And thanks to the recent market declines, where people have sold everything, regardless of whether the current situation affected them or not, the company is at 17 times earnings. Normally it was at 21 times. These are companies that trade at higher multiples. Here we can see from 24 to 22 because basically IFF is a monopoly. It has very few international competitors with its same scale, brand, reputation, and so on, and with high profit margins. So we are at levels, well, of the 2022 crisis when the stock market also dropped like now by 20%, or COVID, but it’s rare for this company to trade below 16, 17 times, which is the valuation it’s at currently.”
Watch the exact part of the video where @Artedeinvertir talks about International Flavors & Fragrances here:
Watch the video on YouTube
Read more articles analyzing International Flavors & Fragrances (IFF) at the provided link. IFF stock.
