Less Is More with Christian Hansen (CHYHY)

Feeding our ever-expanding global population in a resource-constrained world presents challenges. Like any great challenge, this one also presents opportunities – opportunities which Christian Hansen is poised to address.

Christian Hansen is a Denmark-based chemicals company that has supplied natural ingredients to the food industry since 1874. The company’s products are aimed at reducing global dairy and yogurt waste, improving global health through healthier, safer products (expanding probiotic use and replacing artificial food dyes with natural dyes), and promoting sustainable agriculture through natural plant protection. It reports that 82% of revenue is aligned with the United Nations Sustainable Development Goals. The company also reports that 62% of its revenue is derived from the sale of products that help reduce carbon emissions by increasing cheese yields (less milk required to make cheese) and lengthening the shelf life of dairy products (reducing food waste).

Hansen is focused on environmental sustainability. Beyond the benefits of its products, arguably where it has the most impact, the company is also working to reduce the impact of its operations. It has set quantitative reductions targets for 2022 in the areas of energy use, water use, carbon emissions, and waste recycling, and has made progress on each of the goals. The company has already surpassed its waste recycling target – three years ahead of its deadline. It is also focused on improving workplace safety and workforce diversity. The company has demonstrated progress toward its quantitative targets in both areas. There are four women on its board of directors and two women on its executive board and leadership team.

From the investment perspective, Hansen has a strong global market position and economies of scale, with customers in 140 countries and production facilities in several countries.

Hansen is highly profitable, and its historic and prospective growth rates are steady and robust. The company is targeting annual organic growth of 7-9% over the next several years.

The company aims to benefit from several global “megatrends.” A growing world population and resource scarcity require innovation to improve productivity and reduce food waste. Consumer insistence on “real foods” requires meeting clean label demands. An aging population and increasing health care costs require cheaper and preventive solutions. There is mounting scientific evidence and a growing recognition of the benefits from “good bacteria,” which Hansen is well positioned to lead.

The stock’s valuation is much higher than we’d typically accept but is in line with the company’s historical norm. Also, the stock is not in favor among the twelve analysts who cover the company (the average rating is a weak “hold”), which we consider to be a good thing.

Sure, the valuation case may not make us melt, but we think macro trends related to reducing food waste, increased demand for natural food dyes and probiotics, as well as increasing shifts away from agrochemicals to sustainable solutions could serve as a tailwind for Christian Hansen.