Recommendations

Chr. Hansen Holding IPO Research Report

Chr. Hansen Holding A/S (Chr Hansen) was established in 1874 and is a leading provider of natural and bio-science based ingredients for the food, pharmaceutical, nutritional and agricultural industries. The company has manufacturing facilities in Asia, Europe, North America and South America.

Growth in the global population and increasing income levels has led to higher demand for processed food and dairy products. This has subsequently led to greater demand for food and dairy product additives, such as cultures, enzymes and colors. With higher demand projected for packaged dairy and other processed food products, we expect strong growth in demand for cultures, enzymes and other additives. Furthermore, increasing awareness amongst consumers of the health benefits associated with some live bacteria in health foods is expected to drive demand for probiotic products. In addition, we expect the global market for food and beverage additives, such as colors, to register healthy growth driven by the increasing preference for natural substitutes over the more traditional synthetic additives.

We expect Chr Hansen to register robust revenue growth driven by higher revenues across all of the company’s operating segments. In addition, we expect improvement in margins due to decline in administrative expenses, partially offset by increase in cost of sales. We expect the company to continue pursuing consolidation opportunities through selective acquisitions, resulting in greater product and service offerings. However, as of FY 2009, 55% of the company’s revenues were generated in Europe. Hence, any further deterioration in the European markets may adversely impact the company’s revenues. In addition, some of the company’s probiotic products are under evaluation by the European Food Safety Authority (EFSA) to determine the scientific validity of the product’s health claims. The company’s probiotic product sales may be adversely impacted if the EFSA gives an unfavourable ruling. Consequently, we believe the company’s drivers described above have been factored into the offer price range, leaving limited upside potential in the Chr Hansen IPO at the mid-point of the offer price range of DKK102.00 per share.

Chr Hansen is offering 55.77 mn shares, comprising 28.62 mn – 38.49 mn new shares and 17.27 mn – 27.14 mn existing shares offered by selling shareholders, with an over-allotment option of an additional 5.57 mn shares. The offer price range has been set at DKK87 – DKK117 per share. Chr Hansen intends to raise net proceeds of DKK3,161 mn from new shares, excluding commissions and other estimated offering costs and expenses. The company will list its secondary shares on the NASDAQ OMX Copenhagen on 03 June 2010, with new shares expected to commence trading on 10 June 2010.