Valuation Method and Risk Statement

Research evidence excerpt

Valuation Method and Risk Statement

DSM-Firmenich: DSM-Firmenich, with the Feb-26 announcement of the ANH disposal to

CVC, is transitioning to become a consumer pure-play, with its historical exposure to the

vitamins cycle removed. This exposure to vitamins was a significant driver of earnings volatility

in the business. Key downside risks include; 1) failing to deliver on the revenue synergies

associated with the merger; 2) failing to win its fair share of new brief activity; or 3) being

unable to pass on any material input cost inflation to customers via higher pricing. We use an

equal weighted blend of DCF and a SOTP valuation for our PT. We assume a WACC of 8.1%

and terminal growth rate of 3.25%.

BASF: We value BASF using a blend of sum-of-parts and DCF methodologies. BASF's earnings

are linked to economic activity, the agricultural cycle and industrial production and if these

vary differently to our forecasts, it could affect our valuation of the stock. In addition, the

company is sometimes involved in antitrust or product litigation, which could affect our

valuation. Other key risks to our Neutral rating include, on the downside a global recession in

FY26/27, automotive end market demand downturn and increased China imports causing

disruption to the EU supply/demand dynamic. On the upside, the risks include long-term

supply disruption in Asia; China aggressively cutting capacity; and faster recovery in demand.

Croda: Croda's prospects and future profitability are reliant on the success of its R&D pipeline

and new product introductions to fuel its growth. Delays or lack of new products could affect

our earnings forecasts and our valuation of the company. We use an equal blend of SOTP &

DCF for the valuation of Croda.