Goldman Sachs: Under stagflation pressure, Novonesis is the most resilient, while Croda's pricing power is underestimated

Overview

This report focuses on the relative resilience of European consumer ingredients companies under a stagflation scenario. Goldman Sachs believes demand momentum in 2Q26 did not deteriorate materially versus 1Q26, but regional and category performance was uneven; risks to energy, freight, and raw materials stemming from the Middle East conflict, as well as the impact of a closure of the Strait of Hormuz on Asia-Pacific supply chains, have kept investors cautious on volume and margin prospects for 2H26 and FY27.

Core views

The core conclusion is that the sector's overall discount may persist until growth is more clearly volume-driven, re-accelerates, broadens across categories, and is not overly reliant on price increases. At the stock level, Goldman Sachs is most positive on Novonesis, viewing its input and demand risks as lower; it also emphasizes that although Croda screens weaker on some risk dimensions, the market may be underestimating its ability to raise prices earlier and by a greater magnitude. Kerry retains defensive characteristics, Symrise is preferred relative to Givaudan, DSM-Firmenich remains Neutral, and Givaudan is covered with a Sell rating due to its higher exposure to emerging markets and Asia-Pacific.

Analysis framework

The report uses a four-dimensional relative resilience framework: first, discretionary consumer demand exposure, measuring businesses more vulnerable to weakening consumer purchasing power such as Fine Fragrance, Dietary Supplements, Foodservice, and premium Beauty & Cosmetics; second, dependence on synthetic raw materials, assessing the pressure of higher petrochemical prices on gross margins; third, local and regional customer concentration, measuring the vulnerability of customer balance sheets and purchasing capacity during downturns; and fourth, revenue exposure to emerging markets and Asia-Pacific, assessing the impact of weak economic growth, pressure on lower-income consumers, and supply chain disruptions.

Methodology notes

• Macroeconomic stress testingFour-dimensional stagflation resilience framework

  Assesses the resilience of consumer ingredients companies from four angles: demand, cost, customer structure, and regional exposure.

  This framework is not a single valuation model, but rather a tool for comparing the relative risk exposure of different companies in an environment of stagflation, rising raw material costs, and weakening demand.

• Valuation methodsTwo-stage DCF

  Uses WACC and terminal growth rates to estimate 12-month target prices.

  The report uses a two-stage DCF for DSM-Firmenich, Novonesis, Croda, Kerry, and Givaudan; Symrise's target price also includes an 85% fundamental valuation weighting and a 15% M&A valuation weighting.

• Relative valuation and earnings expectationsGSe vs Visible Alpha Consensus

  Compares Goldman Sachs forecasts with market consensus expectations.

  The report notes that Goldman Sachs is more optimistic than consensus on upside to adjusted EBITDA for Novonesis and Croda from 2026 to 2028.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Novonesis

  Top pick, Buy on CL

  Strengths

  Low discretionary consumer exposure, low dependence on synthetic inputs, strong F&B growth, and structural demand from dairy efficiency, protein, GLP-1-related trends, and increased enzyme penetration.

  Weaknesses

  Still faces weak Chinese consumption, slowing Human Health growth, and execution risk in M&A integration.

  Comparison

  It screens best in the four-dimensional resilience framework, and Goldman Sachs is more optimistic relative to consensus.

  Risks

  Merger integration costs, delayed synergies, weak Chinese foodservice consumption, lower oil prices reducing the attractiveness of enzyme-based substitutes for petrochemical solutions, and slower dietary supplements demand.

• Croda

  Bullish, Buy

  Strengths

  Its manufacturer positioning gives it the ability to raise prices earlier and by a greater extent, while its pricing power and upside from biosurfactant production are seen as not fully reflected.

  Weaknesses

  Higher exposure to Asia-Pacific and to certain business cycles, resulting in superficially higher risk in the framework screen.

  Comparison

  Compared with ingredients peers, Croda's business model is closer to the chemical manufacturing value chain, giving it stronger price-cost hedging capability.

  Risks

  Value-destructive acquisitions, significant GBP appreciation, prolonged weakness in Crop or Industrial Specialties, customer destocking in Consumer Care, and rising input costs impairing pricing power.

• Kerry

  Defensive bullish, Buy

  Strengths

  Resilient Food & Beverage demand, growth driven by renovation, and Foodservice momentum provide support; valuation is attractive.

  Weaknesses

  Foodservice exposure is about 32%, so demand would come under pressure if dining out weakens; APMEA volumes in 2H may be weaker than expected.

  Comparison

  Its high share of natural inputs provides better protection on synthetic raw material inflation, but local and regional customer concentration is relatively high.

  Risks

  Broader GLP-1 adoption suppressing food consumption volumes, weaker Foodservice channels, volatility in natural input sourcing, regulatory and formulation adjustment pressures, APMEA execution risk, margin delivery risk, and FX translation risk.

• Symrise

  Relative preference, Buy

  Strengths

  Order pipeline supports sequential volume improvement within the year, negative pricing effects in Pet Nutrition are normalizing, and valuation still trades at a meaningful discount to Givaudan.

  Weaknesses

  High exposure to local and regional customers, and margin progress still warrants caution relative to consensus expectations.

  Comparison

  Goldman Sachs relatively prefers Symrise over Givaudan because its valuation discount remains larger.

  Risks

  Weaker-than-expected recovery in Pet Food, intensified competition in aroma ingredients in China, renewed raw material inflation with difficult pass-through, broad GLP-1 adoption weighing on Taste, Nutrition & Health growth, and value-destructive acquisitions.

• DSM-Firmenich

  Neutral, Neutral

  Strengths

  Q1 performance was better than expected, and the Fine Fragrance business is supported by the project pipeline won in 2025.

  Weaknesses

  Some growth came from advance purchasing, and raw material inflation in 2H, especially in P&B, may become a greater headwind.

  Comparison

  Lacks a clear resilience advantage relative to Novonesis; target price implies only 5% upside.

  Risks

  Higher-than-expected stranded costs from the ANH divestment, plant shutdowns, capital allocation that destroys value, and a weaker-than-expected recovery in the U.S. consumer.

• Givaudan

  Negative, Sell

  Strengths

  The market believes it has the ability to sustain price increases above inflation.

  Weaknesses

  Highest exposure to emerging markets, a high share of Asia-Pacific sales, and greater impact on consumers and supply chains in the region if the Strait of Hormuz is closed.

  Comparison

  Relative to Symrise, Goldman Sachs is more concerned about Givaudan's regional and valuation risks.

  Risks

  If the U.S. consumer and discretionary spending recover faster than expected, MNC sentiment improves, Fine Fragrance re-accelerates, or reformulation trends strengthen, these could pose upside risks to the Sell view.

Key data

• Report date2026-05-26The report cover shows Equity Research, with a publication time of 8:00AM GST.
• Kerry discretionary consumer exposure32% of salesMainly from Foodservice exposure; demand risk is higher if consumers reduce dining out.
• Novonesis discretionary consumer exposure6%It screens best on this dimension and is therefore viewed as more defensive.
• Dependence on synthetic raw materialsNovonesis 5%; Kerry 10%; Givaudan 50%; DSM-Firmenich 60%The higher the share of synthetic inputs, the greater the margin pressure when petrochemical prices rise.
• Local and regional customer concentrationKerry 69%; Symrise 67%Local and regional customers may face higher balance sheet and purchasing risks during economic downturns.
• Emerging market revenue exposureGivaudan 51%; Novonesis 36%; DSM-Firmenich 30%Lower-income consumers in emerging markets are more sensitive to economic weakness, creating additional demand risk.
• Asia-Pacific exposureCroda 27%/48%; Givaudan 24%; Symrise 17%Different figures for Croda's Asia-Pacific exposure appear in the input text, but the conclusion is consistent: Croda and Givaudan have relatively higher Asia-Pacific exposure.
• Novonesis Q1 F&B organic growth15%Goldman Sachs believes the growth is driven more by structural factors, including protein, GLP-1-related demand, whey scarcity, and improved value from by-products.
• Novonesis relative to consensus约140bps ahead of Visible Alpha ConsensusGoldman Sachs forecasts higher growth for Novonesis Food & Beverage in FY26 and beyond than market consensus.
• Sector valuation backdropmultiples near the lower end of long-run rangeGoldman Sachs believes the sector discount may persist until volume-driven growth is validated.

Impact & implications

The investment implication is that in a stagflation environment, investors should not focus only on low sector-wide valuations, but instead differentiate among companies by business mix, cost pass-through ability, and regional risk. Novonesis is better suited as the preferred defensive growth name in consumer ingredients; Croda may offer a price-cost hedge underestimated by the market; while Givaudan, despite being perceived as having pricing strength, has its risk-reward constrained by emerging market and Asia-Pacific risks.

Risks

• Rising energy, freight, and raw material risks due to the Middle East conflict could compress margins in 2H26 and FY27.
• A sharp rise in petrochemical prices would increase gross margin pressure on companies with high synthetic input exposure.
• Weakening discretionary consumer demand could hit Fine Fragrance, Dietary Supplements, Foodservice, and premium Beauty & Cosmetics.
• Weaker balance sheets and purchasing power among local and regional customers could amplify downside risk during downturns.
• A closure of the Strait of Hormuz would cause greater disruption to Asia-Pacific supply chains and consumer demand.
• Lower-income consumers in emerging markets are more sensitive to economic slowdowns, which could weigh on companies with high EM exposure.
• The sector valuation discount may persist until volume-driven growth is validated.

What to watch

• Whether demand momentum remains stable after 2Q26, and whether volumes and margins deteriorate in 2H26.
• Whether FY27 growth is volume-driven rather than mainly dependent on price increases.
• Whether growth re-acceleration broadens beyond Fine Fragrance into other categories.
• Trends in petrochemical, energy, freight, and key natural raw material prices.
• The ongoing impact of the Strait of Hormuz and the Middle East conflict on Asia-Pacific supply chains.
• Recovery in consumption in China and APMEA, and the impact of local competition on Kerry, Novonesis, and Symrise.
• Whether Croda can deliver its price-cost hedge and biosurfactant upside.
• Whether Novonesis can sustain M&A integration, synergy realization, and structural F&B growth.