Project Clean Cow. Under this name, DSM spent ten years developing a methane inhibitor: an agent that suppresses methane production in the cow’s stomach and thus ensures that cows emit 30 percent less of this greenhouse gas. The drug was approved for the European market last week.
A boost for the Dutch chemical company, which announced in September 2021 that it would exclusively focus on food products for humans and animals. Then you have to think of vitamins, minerals and proteins, but also of flavorings. DSM therefore put its materials division, which produces high-quality plastics, for sale.
The news led to a rise in the DSM share, in a year that was already good in terms of stock market performance. The share closed 2021 at a record high of just under 200 euros.
But since then the euphoria seems a bit over. On the stock exchange, the DSM share fell back to a value of around 160 euros in the first two months of this year.
According to analyst Sebastian Bray, of investment bank Berenberg, this has not so much to do with DSM itself. It is inflation that is putting pressure on the prices of all growth stocks. At the same time, high raw material prices affect the sector in which DSM operates.
Analyst Fernand de Boer of Degroof Petercam agrees with Bray. But according to him, uncertainty about the expected yield of the materials division also plays a role. „When DSM announced the split, the market was unbelievable bullish† Now that interest rates are rising and market sentiment is deteriorating, it is quite possible that the price that parties can or are willing to pay for the division will suddenly be lower.”
Bray is more optimistic, based on the quarterly figures that DSM recently presented. “The materials division performed very well in the fourth quarter of 2021. That may have implications for the price to be determined.” He expects the division to generate between 4 billion and more than 5 billion euros.
DSM strongly emphasizes the importance of sustainability in food production, combating food waste and eating more plant-based foods to reduce the ecological footprint. In line with this aim, the group aims to halve its own greenhouse gas emissions by 2030 compared to its emissions in 2016.
According to De Boer, DSM does indeed score quite well in terms of ‘ESG’ – the Environmental, Social & Governance aspects of a company. “That is becoming increasingly important for investors. The high valuation of the DSM share last year was probably partly due to this.”
Back to those clean cows. DSM’s methane inhibitor, Bovaer, fits perfectly within a sustainable product portfolio. European Commissioner Stella Kyriakides (Public Health) even said in response to the EU approval that reducing agricultural methane emissions “the key to our fight against climate change” is.
According to DSM, the drug has great market potential. According to De Boer, the company wants to achieve a turnover of 100 million euros by 2025.
There are about a billion cows around the world, so the market is considerable. But, says Bray: “We don’t know what market share DSM will get, and we don’t know anything about the price of the product yet.” He assumes that it will cost about 5 euros per cow per year, “but that is an estimate that has not been confirmed by the company itself.”
Moreover, there are alternatives, he says, such as the Swiss Mootral. But that is probably “substantially more expensive” than what he thinks DSM will charge.
A version of this article also appeared in NRC on the morning of February 28, 2022