DSM-Firm.; Dividend Hike And Spin-Out Plan. Credit Neutral.

DSM-Firm. (DSFIR NA) reported 4Q23 results which marginally beat consensus but the big plan to spin out animal health and shrink vitamins is being well received by equity investors, as is the larger dividend. There no data here on how the debt stack will land across the two NewCos yet – demerger expected in FY25 but should not be a broad credit negative.

• Revenues in 4Q23 were 6% lower y/y (led by TTH – flavourings – and the animal business) but this was 2% better than consensus. Adjusted EBITDA was also lower but still better than consensus. The dividend of EUR2.5 is well above consensus (of EUR2.0) and there’s a plan to separate out the animal business in 2025.
• Key credit metrics: net debt is EUR2.2bn (up from 1.8bn at Jun-23) and likely to move to EUR2.9bn (1.6x adj EBITDA) if the buyout of the remaining DSM BV holders occurs (0.4bn already done at 13-Feb-24). So pure static credit metrics do appear weaker.
• Outlook guidance for adj EBITDA is in line with market consensus already and mgmt does note “weakness in China” as something of a brake right now. The big news is the spin-off plan and vitamin business shrinkage to refocus group on higher-quality earnings. There is currently no guidance on what debt will be loaded into the spin-out entity, nor if this leads to redemption of currently-issued bonds.