Global Chocolate Unwrapped | Europe June Edition: Rising El Niño Risks

Research evidence excerpt

Global Chocolate Unwrapped | Europe June Edition: Rising El Niño Risks

ge do not expect a repeat of the Richard Li

2023/24 super-cycle. We note despite the recent rally, cocoa bean prices are still Research Associate

Richard.Li@morganstanley.com +44 20 7425-1976

flat YTD and down -16% y/y. See the section Unpacking El Niño Risks, for more detail,

and our global team's report El Niño Risks Rising into 2026/27: Where the Risk Sits, Morgan Stanley & Co. LLC

Darryl Scott Butler Jr

and How to Play It — a Global Cross-Sector Guide. Research Associate

Darryl.Butler.Jr@morganstanley.com +1 212 761-0672

From a stock perspective, Barry Callebaut (OW) is the most sensitive to higher

Morgan Stanley & Co. International plc+

cocoa bean prices, largely affected through working capital absorption and

Tilly Eno

derivative positions. However, we see FY26 FCF expectations largely insulated as Equity Analyst

the group's new letter of credit facilities help smooth the near-term impact on Tilly.Eno@morganstanley.com +44 20 7677-3662

derivative positions, though FY27 FCF could be at risk depending how bean prices Food Producers

evolve during the main crop season (October-December) - a key contracting period. Europe

Industry View In-Line

However compared to last cycle, BARN's leverage is in a much better position and its

earnings more compressed. We continue to see stock's medium-term earnings

normalisation story as attractive (underlying earnings compressed with FY25/26E

PBT/t c.35% below 2019) despite near-term risks. Lindt & Sprüngli (EW) is also

geared to cocoa bean prices, though to a lesser extent, and the associated impact is

more through COGS than working capital. Whilst its P&L impact will likely be

limited near-term given c.12 months hedging, higher bean prices now raise the risk of