Lindt remains an expensive treat

Rich, sweet and gooey, Lindt chocolates never last long after Christmas. But, appetising as they are, eat too many and indigestion may follow. The same rule applies to investment in the shares of the premium Swiss chocolatier. For decades, Lindt stock has enjoyed steep earnings valuation multiples. Its price-to-earnings ratio of 36 times compares with 20 for Nestlé and 24 for Barry Callebaut. For a long time, this could be justified by organic growth of between 6 and 8 per cent. But as chocolate sales plateau in more mature markets, it is no longer clear this target will be met… People are eating more healthily… Unsurprisingly, Lindt is looking for growth elsewhere. Sales in China doubled in the half year, it said. But per capita chocolate consumption there works out at just 10g, against more than 4kg in America and almost 9kg in Switzerland. There is some way to go before China’s $3 billion sales rise to a more alluring level. There is some hope for Lindt. Higher cocoa prices, from an expected El Niño weather phase, could soothe any potential dyspepsia. If higher prices ensued due to poor harvests, Lindt could later pass these on to consumers, protecting margins. That, however, is a big “if”. Lindt, for the time being, remains an expensive treat.