Description

Summary

Savencia Fromage & Dairy, a major player in cheese and dairy, made €6.8 billion in net sales in 2023, placing it in the top five dairy companies in the world, yet it remains unknown to most institutional investors. Despite its staple product, defensive nature and consistent financial performance, the stock is priced quite attractively, trading at 3.4x EV/2024 EBITDA, 5.4x P/2024 E, with a free cash flow yield of around 20% and a dividend yield of 2.8%. Founded in 1956 by the Bongrain Family in France, the company is still about 70% family-owned and managed. It’s largely unknown to institutional investors, with virtually no research coverage, and management keeping communications minimal. The stock is at a 15-year low in terms of its key valuation metrics, suggesting it’s worth a closer look.

Business Overview

Savencia Fromage & Dairy is a global leader in cheese and dairy, ranking as France’s second-largest cheese producer and the fifth-largest worldwide. Operating in over 120 countries, the company employs 22,329 people and processes 5.1 billion liters of milk annually. Its operations are divided into three key segments:

1. Retail: Cheese Products, Butter, Cream, and Infant Formula

2. Food Service: Cheese and Cheese Sauces

3. Industry: Dairy Ingredients, Nutritional Solutions, and Technical Butters

Savencia’s strategy combines strong local market knowledge with a portfolio of premium regional and international brands, including Caprice des Dieux, St Môret, Saint Andre, Alouette, AFP, Smithfield, Bresso, Chavroux, Islos, Berthaut, Fol Epi, Milkana, Ilse de France, Elle & Vire, and more.

Summary Investment Thesis

1. Strong Brand Portfolio: Savencia’s renowned brands like Caprice des Dieux and St Môret, built on local heritage and international recognition, give it a strong market position. Their premium and regional brands add significant value.

2. Local Partnerships: By processing 5.1 billion liters of milk through partnerships with local dairy farmers, Savencia ensures a steady supply of quality milk and reduces transportation fuel costs.

3. Operational Expertise: Savencia’s global production sites focus on quality and efficiency, using AI to optimize supply chain logistics, streamline production, and enhance inventory management.

4. Global and Local Strategy: The company’s “glocal” model merges global expertise with local market insights, allowing it to adapt products to regional preferences while leveraging its global knowledge.

5. Owner-Operator Stability and Cheap Valuation: With 70% family ownership, Savencia has a strong balance sheet, an attractive valuation (20% FCF Yield, 3.2x EV/EBITDA), and reliable dividends (2.8%). Its net debt to EBITDA ratio has remained below 1.5x, currently at 1.3x.

Global Recognition and Product Excellence

Savencia's dedication to quality is evident from its performance at international competitions. In 2023, it won 17 gold medals at the Mondial du Fromage et des Produits Laitiers, which featured nearly 1,600 products from 50 countries. Savencia’s Berthaut cheeses were among the winners, highlighting Savencia’s expertise in traditional cheese-making.

Industry Trends

Cheese remains a key component in the dairy category, with rising annual sales. In the U.S., per capita cheese consumption has doubled over the past 20 years to 42 pounds in 2022. This is still lower than many European countries, showing room for growth.

Sustainability and Health

Savencia is committed to producing high-quality and environmentally responsible products. They focus on minimal processing and simple, healthy ingredients. Their ESG initiatives include using 50% plant-based plastic for Tartare packaging, reducing Bresse Bleu’s plastic by 37%, and making Roquefort Papillon’s trays 100% recyclable with 50% recycled material. These efforts not only benefit the environment but also improve cost-effectiveness and operational efficiency.

Product Leadership and Vegan Innovations

Savencia is leading in product innovation, including high-protein and plant-based options, both areas with strong secular tailwinds. In Spain, Burgo de Arias Protein Plus cheese was named "Product of the Year 2024" for its high protein content. They are also making strides in the plant-based sector with vegan products like Bresso, Tartare Végétal, and Paturain’s vegan line, which are performing well across Europe.

Sales Breakdown and Geographic Reach

Savencia’s revenue is well-diversified: 31.6% from France, 37% from the rest of Europe, and 31.4% from international markets. Their global presence is mirrored in their workforce distribution: 45.2% in France, 26.1% in Europe, and 28.7% internationally.

Infant Nutrition and High-Protein Products

Savencia is a key player in infant nutrition, a higher growth market, with its Modilac brand, offering organic formulas enriched with lactoferrin, produced in Normandy with 100% French milk. They also produce protein-free formulas for allergic infants in Poland, showcasing their commitment to specialized health needs.

Strategic Partnerships and Commercial Expansion

Savencia’s strategic partnerships enhance its commercial success. In China, they collaborate with Pain Chaud to create innovative recipes. In India, Milkana Professional Filler Cheese is popular with the fast-food industry. In Korea, they work with Lab Seoul to help local pastry chefs improve recipes with brands like Elle&Vire Professionals, Corman, and Lescure.

Focused on Discount Products Amid Inflation

In a high-inflation environment, Savencia offers high-quality dairy products at competitive prices. Their focus on discount brands helps consumers manage budgets while maintaining quality, strengthening their market position as a leader in affordable yet premium dairy products.

AI-Driven Efficiencies

Savencia leverages AI to enhance operational efficiency, optimizing supply chain logistics, production processes, and inventory management. This digital transformation helps reduce costs and boost profitability.

Strategic M&A and International Expansion

Savencia’s growth strategy includes strategic acquisitions, like their recent purchase in Argentina, which expands their footprint and opens new revenue streams.

Supporting Local Agriculture

Savencia supports local agriculture through financial incentives, training, and expansion of its farmer network. In 2023, they signed an agreement with local cooperatives, adding 134 farms and 50 million liters of milk to their network.

Recent Financial Performance

In 2023, Savencia achieved €6.8 billion in revenue, up 3.7% year-over-year. This growth was driven by an 11.6% organic growth rate, despite a -10% currency impact from the Argentine peso. The Cheese Products segment grew 6.8%, with a significant increase in operating profit and margin. The Cheese Products Segment has had very consistent performance, increasing revenues every year over the last decade. Other Dairy Products saw a slight revenue decline but strong organic volumes but declining prices in milk, butter and whey, which led to a decrease in operating profit and margin.

Valuation

Savencia’s stock is trading at a 15-year low, with an EV/NTM EBITDA of 3.4x, FCF Yield of 20%, P/NTM of 5.2x, and P/LTM Sales of 0.1x. Despite sales increasing nearly 50% over the last 5 years and EPS nearly doubling, the valuation remains low due to limited investor and research attention, low communication with the street, and a small float.

Catalysts

• A turnaround in Other Dairy Products (food service/industry) with a normalization of milk, butter, and whey prices.

• Continued innovation and expansion into high-growth areas like vegan, protein, and infant formula products.

• Expanded collaborations with commercial partners in Asia, the Middle East, and North America.

• Potential dividend increase or further buybacks.

Disclaimer

• This is not financial advice. The author assumes no responsibility or liablity for any errors or missions in the content of this write-up. The informatiopn contained here is provided on "as-is" basis with no guarantees of completeness, accuracy, usefulness or timeliness and without any warranties of any kind, epxress or implied. Do your own work and don't rely on this information for financial and investment decisions. 

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Appendix- Financial Information.

Catalyst

• A turnaround in Other Dairy Products (food service/industry) with a normalization of milk, butter, and whey prices.

• Continued innovation and expansion into high-growth areas like vegan, protein, and infant formula products.

• Expanded collaborations with commercial partners in Asia, the Middle East, and North America.

• Potential dividend increase or further buybacks.