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The stock hitting the sweet spot this Easter

The stock hitting the sweet spot this Easter

Chocolate maker Lindt has the potential to provide investors with sweet returns even when Easter is over, according to Nicolas Bürki.

Bürki told Citywire Selector that the company was continuing to grow market share in the US after its acquisition of American confectioner Russell Stover. The managers currently hold a 4% position in Lindt. 

'Lindt has had a positive history over the past decade. They really improved their premium positions where they were already with constant growth.

'They also went into new markets and the expansion has proved to be very profitable for the shareholders and the company,' he said.

Bürki, who runs of the Mirabaud Fund (CH) – Swiss Equities and Swiss Small and Mid funds with Citywire A-rated Paul Schibli, said returns are improving in the sector as a whole.

'The past 12-14 months have been a little less buoyant, however the market of premium chocolate is still giving Lindt consumer growth and its operating leverage is over proportionate for the net income and free cash flow for the shareholders.

'Premiumisation has been mostly untouched by all the negative trends that we have seen for the broader range of food producers like Nestlé,' he added.

Bürki said the company has expanded its global reach without compromising the quality of its chocolate or appealing to consumers who wish to spend less.

‘They are also expanding their brand portfolio but they are still at the high end. They have with more chocolate in the same premium segments. New tablets with new aromas or combinations like caramel, salt and pepper ranges. They don't dilute the brand by going lower in the quality range.’

Sweet success

In the small cap space, Lindt compares favourably to its competitors., he said. Zurich-based Barry Callebaut is one of the largest cocoa producers and grinders, but Bürki believes the stock focuses on other markets to Lindt.

'We are not that big fans of Barry Callebaut which would be the other chocolate producer. The business is different. Lindt is the premium chocolate brand in the world while Barry Callebaut is more industrial.

'They outsource to chocolate brands and have a different positioning. They supply chefs with high quality chocolate, but have a different mix of activities in their business,' he said.

The chocolate producer also scores highly on its ESG credentials, allowing investors a guilt free way to indulge their sweet tooth.

'They have done sizable efforts on sustainability because they have the ethics to do it and it is in their interests to have a sustainable supply chain,' he said.

'They have focused recently on Ghana because they source a lot there. Nestlé has also been criticised but has put a lot of effort into sustainability and being responsible towards their suppliers and workers.’

Over three years to the end of March 2017, the Mirabaud Equities Swiss Small and Mid-A Cap fund returned 33.86% in CHF terms. This compares to a rise of 39.12% by a rise of 39.12% by its Citywire-assigned benchmark, the Swiss Performance Index Extra TR, over the same time frame.

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