How to analyze a share with Leeway

Step 1:
Classification of the Company

Generally, a classification of the company can be carried out through a less time-intensive internet research. The goal here is to get a feel for aspects such as business model, industry, and long-term as well as current developments in the company's environment.

Symrise is a German supplier of fragrances, flavors, and active ingredients for food, cosmetics, and pharmaceuticals. The company is a classic supplier for companies with 6,000 customers from the food and beverage industry, cosmetics, and pharmaceutical industry. This also includes manufacturers of dietary supplements and pet food. In the global market for fragrances and flavors, the company holds a 10% share, placing it just behind Givaudan and level with IFF. With over 3 billion euros in revenue and a good 15 billion euros in market value, it is one of the 50 most valuable publicly traded companies in Germany. (Source: Wikipedia)

Symrise's business structure is being digitalized by Atos. The corresponding contract was recently extended by another 5 years. Symrise is being supported by Atos through Design Thinking workshops and regular innovation meetings for projects such as machine-learning based solutions in the Research & Development area (more about this).

Much more interesting is that Symrise clearly benefits from the Covid crisis. Consumers who normally invest in vacations and restaurant visits are currently staying at home, where they spend their money on baking ingredients, for example (more about this). Accordingly, Symrise is now being traded as a top candidate for DAX promotion (Source: FAZ). It is interesting to know that the price of promotion candidates often develops very well until they are included in the DAX. After that, problems often arise - a classic example of "news follow price": When the DAX promotion is officially announced, larger investors usually know about it well in advance and the news has long been reflected in the stock price. The market has anticipated the news.

Step 2:
Sustainability

Interest in sustainable and responsible investments is steadily growing and for good reason. Not only do we want to sleep peacefully with our investments, many business models that do not focus on aspects of sustainability have only a limited lifespan (see, for example, fossil fuels). Therefore, it is not surprising that sustainable investments were more profitable than average. Therefore, we recommend selecting investments with regard to sustainability criteria. You will soon receive this data quickly and clearly through our ESG score, which is currently under development.

Since 2012, Symrise has been regularly recognized as a particularly sustainably operating company, especially with regard to its sustainable supply chains. (Source: Wikipedia)

Among other things, Symrise is a member of the Round Table for Sustainable Palm Oil and is committed to sustainable forestry, shares supply chain data via Sedex and pays attention to certifications in quality assurance as well as occupational safety and good manufacturing practice. However, weaknesses are evident in waste management. The recycling rate is significantly below 10%, a large portion is incinerated or buried, and around 30% of waste is classified as hazardous. Neither with regard to the absolute amount of waste nor the ratios of recycling or hazardous waste has a positive development been observed since 2016 (Source: Symrise Sustainability Report and soon in a compact and prepared form at Leeway).

Greenhouse gas emissions were continuously reduced between 2016 and 2018, primarily through lower emissions in the supply chain. In 2019, there was a massive increase that initially negated the positive balance of recent years. Whether this is a one-time effect or a fundamental trend reversal remains to be seen (Source: ethidat.de).

Step 3: Fundamental Analysis

Fundamental analysis is the best way to find companies that are suitable for long-term investment. This involves evaluating companies' balance sheets. For example, it examines how profitably companies operate - whether they make money, incur debt, grow, and much more. All of this normally takes a lot of time. However, our algorithms evaluate the balance sheets of over 25,000 companies for you and present at a glance how attractive their profitability, financial stability, and value for investors are.

With a fundamental rating of 48.8 on a scale of -100 to 100, Symrise places itself in the solid range, but clearly misses an excellent rating. A look at the key figures reveals the company's financial strengths and weaknesses.

Particularly positive is Symrise's valuation in the market. The high but reasonable price (average P/E ratio of 53, price-to-EBIT ratio of 38, etc.) shows clear buying interest from investors, which is still at a rational and justified level. This suggests a probably significantly positive business development. The low dividend also shows that investors expect innovation and growth. Slight weaknesses are revealed in the latently low price-to-book and price-to-sales ratio, which indicate a cost-intensive business model. The latter puts pressure on margins: even though they are consistently solid, they remain suboptimal for this type of company.

The graph shows that a company like Symrise with a return on assets of 5-10% in the past achieved an average price growth of 26.8% in the following two years. Similar companies with a return on assets of 15% - 20% achieved an average price gain of 41.4%.

Looking at the correlation between value growth and return on assets for this type of company, Symrise with 5.46% is found exactly in the middle of profitability. A similar picture emerges with other margins of Symrise, such as the cash flow margin: with an average margin of 14.4% over recent years, Symrise falls into the 10 - 15% category and receives a rating of 8.2 points. This is enough to expect solid development and even slight outperformance. However, the really strong values typically showed cash flow margins of significantly over 15% in recent years.

How big the Edge? The Leeway Score evaluates the advantage that the key figure offers compared to an average investment. With 8.4 points, Symrise's cash flow margin shows a small but not significant advantage.

The picture is similarly mixed with finances. The equity ratio is stable at just under 40%, but excellence is only achieved at over 60%. Debt is not a cause for concern overall. However, due to the low cash flow, the dynamic debt ratio, which relates debt to cash flow, is clearly too high for such a company. Earnings growth is good, while revenue growth on the other hand is somewhat sluggish. In the end, Symrise is an absolutely solid, if somewhat uninteresting, company. Although the market shows a lot of interest, Symrise has problems converting its rather capital-intensive business into profits and cash flows, which is why it ultimately only achieves a healthy average from a fundamental perspective - roughly the equivalent of a B in school grades.

Step 4:
Technical Analysis

A final analysis step usually consists of technical analysis, in which an impression of the general price behavior of a company can be gained from the price history of a stock: Is it more of a calm, steady value or a value with strong fluctuations? Is the stock in an up or down trend?

The unremarkable movement of the price shows that Symrise is a clear candidate for longer-term investment and is not very suitable for "quick gains." However, when we look at the long-term price development in logarithmic representation, it becomes clear that Symrise has quietly pushed upward on the moving averages in recent years.

Price history of Symrise since IPO at the end of 2006; weekly candles; logarithmic representation.

Even in the strong uptrend after the financial crisis (2009), the price rarely moves far from the average. After strong surges, it usually takes a break first. The upward movement of the last six months was unusually strong for Symrise. Accordingly, it can be assumed that the current price will also take a break or approach the moving averages in the near future. Therefore, the timing is not optimal for a purchase.

Step 5:
Conclusion

In a final step, we now bring together all the analysis results to make a decision about our investment. This is often where the greatest uncertainties exist, and it is not uncommon for private investors to miss attractive opportunities in the market due to risk aversion. At Leeway, however, we are convinced that through diversified, long-term investment in fundamentally stable companies, greater risks can be avoided.

All in all, Symrise is a solid stock in an equally solid business field. The company at least makes public efforts toward sustainability. However, upon closer inspection, weaknesses are revealed not only in terms of sustainability. The company's profitability could also be better. Overall, it becomes clear that while Symrise may be a possible candidate for a stable and "comfortable" investment, it clearly misses the classification as a "must buy" for us.