Novonesis: Science Driving Sustainable Growth

Novonesis is the global leader in biosolutions and a pure-play biotechnology company focused on enzymes, microorganisms, cultures, probiotics, and other biological solutions that improve how the world produces and consumes. By combining deep scientific expertise with proprietary biological assets, world-class fermentation capabilities, and artificial intelligence, the company helps customers across industries create healthier foods, more sustainable agriculture, cleaner energy, and more efficient industrial processes. With exposure to powerful long-term trends in health, nutrition, and sustainability, Novonesis aims to accelerate the adoption of biosolutions while delivering profitable long-term growth. The question remains: Does this biotechnology leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.

For full disclosure, I should mention that I do not own any shares in Novonesis at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Novonesis, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Novonesis was formed through the merger of Novozymes and Chr. Hansen and is the world's leading pure-play biosolutions company. Rather than producing consumer products itself, the company develops biological solutions based on enzymes, microorganisms, cultures, probiotics, proteins, yeast, and human milk oligosaccharides that enable customers to make their own products more efficiently, sustainably, and with higher quality. Its solutions are used across more than 30 industries, including food and beverages, agriculture, animal nutrition, household care, human health, and bioenergy. Every day, Novonesis' biosolutions reach more than two billion people around the world, making the company an essential but largely invisible part of countless products and industrial processes. Its mission is to transform the way the world produces and consumes by replacing or reducing the use of chemicals, fossil-based resources, and energy-intensive processes with biological alternatives. The company operates a highly diversified business model that allows it to benefit from numerous long-term structural trends rather than depending on a single industry. In food and nutrition, its enzymes and cultures improve the taste, texture, nutritional profile, and shelf life of products such as bread, yogurt, cheese, dairy products, and beverages while reducing waste and increasing manufacturing efficiency. In human health, its probiotics and other biosolutions support gut health, immunity, mental wellness, women's health, and healthy aging. In agriculture, its microorganisms help improve crop yields, strengthen plants, and reduce the need for fertilizers and chemicals. In household care, its enzymes enable detergents to clean effectively at lower temperatures, reducing both energy consumption and water usage while extending the lifespan of clothing. Within energy, Novonesis supplies enzymes and microorganisms that help customers convert biomass and waste into bioethanol, biodiesel, biogas, and other low-carbon fuels more efficiently. Across virtually all applications, the objective is the same: helping customers increase yields, lower costs, save energy, reduce waste, and improve sustainability. A defining characteristic of Novonesis' business model is that its products typically represent only around 1% to 5% of its customers' cost of goods sold while generating disproportionately large economic benefits. A small amount of enzymes or microorganisms can significantly improve production efficiency, increase output, reduce raw material consumption, or lower energy costs. Because the value created is often many times greater than the price paid, customers are generally far more focused on performance and reliability than on negotiating small price differences. This attractive value proposition makes Novonesis an important strategic partner rather than simply another supplier of ingredients. The company works closely with customers through an extensive global network of research, application, and co-creation centers to develop tailored biological solutions for specific production processes. Rather than selling standardized products, Novonesis often collaborates directly with customers to solve complex industrial challenges, adapting its technologies to individual applications and regulatory requirements. These long development cycles and collaborative relationships strengthen customer loyalty and create long-term partnerships that are difficult for competitors to replace. Novonesis' competitive moat is built on its scientific leadership, proprietary biological assets, intellectual property, customer relationships, and global fermentation capabilities. At the center of this advantage is one of the world's largest collections of biological data and microorganisms, consisting of more than 100.000 microbial strains and more than 15 million enzyme structures accumulated through decades of research and commercial applications. This proprietary library represents an enormous competitive advantage because it contains data that only Novonesis possesses. While many competitors can access publicly available scientific information, Novonesis can leverage decades of proprietary experimental and production data, giving it a unique foundation for discovery and innovation. This data advantage becomes even more powerful when combined with artificial intelligence. AI models are only as valuable as the quality and quantity of the data used to train them, and Novonesis possesses one of the richest biological datasets in the industry. The company uses AI to identify promising enzyme candidates, predict biological performance, improve fermentation processes, and accelerate product development. This allows Novonesis to move from scientific insight to commercial application more quickly while increasing the probability of successful innovation. As biotechnology increasingly becomes data-driven, its proprietary datasets may become an even larger competitive advantage over time. Another important component of the moat is the company's deep scientific expertise. Novonesis has more than a century of experience in microbiology and industrial fermentation and invests approximately 11% of annual revenue in research and development. Its innovation capabilities are protected by more than 10.000 patents, with new intellectual property continuously being added through ongoing research. The company's scientific knowledge is application agnostic, meaning that discoveries developed for one industry can often be adapted and commercialized across many others. This allows Novonesis to leverage a single technological platform across more than 30 different markets while benefiting from economies of knowledge and innovation. The company's production capabilities provide another significant barrier to entry. Unlike many specialty chemical companies, Novonesis relies almost entirely on industrial fermentation, a highly specialized manufacturing process that requires extensive biological expertise, advanced production facilities, and decades of operational experience. Its global fermentation footprint enables the company to commercialize innovations at scale while providing flexibility, cost efficiency, and supply chain resilience across different regions and end markets. Building such a global fermentation network would require enormous investments, technical expertise, regulatory approvals, and years of accumulated experience, making replication extremely difficult. Customer relationships further reinforce Novonesis' competitive position. Because its solutions are deeply integrated into customers' production processes and often co-developed over long periods, switching suppliers involves technical validation, regulatory considerations, production risks, and potential reductions in efficiency. Since the biological solutions account for only a small fraction of production costs but can have a meaningful impact on product quality and profitability, customers have limited incentive to switch to alternative providers simply for marginal cost savings. This creates high switching costs and long-lasting customer relationships. Novonesis also benefits from favorable long-term structural trends. Growing demand for healthier foods, sustainable agriculture, renewable energy, resource efficiency, and reduced environmental impact continues to expand the addressable market for biosolutions. The company estimates that it is gradually expanding beyond its traditional markets into a specialty chemicals opportunity worth approximately EUR 1 trillion, where biological alternatives can increasingly replace conventional chemical solutions. As governments, businesses, and consumers seek more sustainable production methods, biology is becoming an increasingly attractive substitute for fossil-based and chemical-intensive processes. The combination of proprietary biological data, world-class scientific expertise, extensive intellectual property, global fermentation capabilities, deep customer relationships, and exposure to multiple long-term growth trends creates a highly differentiated business model that is exceptionally difficult to replicate. These advantages allow Novonesis to consistently outgrow many of the underlying markets it serves while maintaining strong pricing power, high customer retention, and significant opportunities for continued innovation and expansion for decades to come.

Management

Ester Baiget serves as the CEO of Novonesis, a position she has held since joining the company in 2020. She is an experienced international business leader with more than 25 years of experience across technical, commercial, and executive roles within the industrial and chemical sectors. Her appointment reflects Novonesis' ambition to strengthen its position as the global leader in biosolutions by combining scientific excellence with commercial execution and long-term sustainable growth. Before joining Novonesis, Ester Baiget held several senior leadership positions in global industrial and specialty chemical companies, where she led large international organizations and successfully drove transformational change, improved profitability, and established strong foundations for future growth. Throughout her career, she has built extensive experience in translating complex technologies into commercially successful products while managing businesses across multiple regions and end markets. Ester Baiget holds a degree in Chemical Engineering as well as an MBA from the University of Tarragona in Spain. Her technical background provides a strong understanding of the science that underpins Novonesis' business, while her commercial experience enables her to connect innovation with customer needs and long-term value creation. She has consistently emphasized that scientific leadership alone is not enough and that innovation must ultimately solve meaningful problems for customers while generating attractive returns for shareholders. Since becoming CEO, Ester Baiget has sharpened Novonesis' strategic focus on expanding the global biosolutions market by leveraging the company's three core capabilities: deep customer understanding, innovation leadership, and world-class fermentation capabilities. Under her leadership, the company has continued investing heavily in research and development while increasingly integrating artificial intelligence into its discovery and development processes. She has also emphasized that Novonesis is not simply competing within existing markets but is helping create entirely new opportunities where biological solutions can replace traditional chemical processes across a wide range of industries. Beyond strategy and innovation, Ester Baiget places significant emphasis on organizational culture and employee engagement. She has worked to build a culture centered on inclusion, engagement, and accountability, believing that scientific innovation ultimately depends on attracting and retaining exceptional talent. This approach appears to be reflected in Novonesis' employee engagement score of 8,6 out of 10, placing the company among the top 10% of organizations measured under the same framework. Such a culture is particularly important for a research-driven company where long-term innovation is one of its primary competitive advantages. Outside Novonesis, Ester Baiget serves on the Supervisory Board of AkzoNobel, sits on the Board of the United Nations Global Compact, and serves as Co-Chair of the World Economic Forum's Alliance of CEO Climate Leaders. She has also been recognized by Forbes and Time Magazine as a global climate leader, reflecting her commitment to integrating sustainability into corporate strategy rather than treating it as a separate initiative. Given her combination of technical expertise, commercial acumen, and long-term strategic vision, Ester Baiget appears well suited to lead Novonesis as it seeks to expand the use of biosolutions and strengthen its position as the world's leading pure-play biology company.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history with all numbers exceeding 10% each year. Novonesis has historically generated very attractive returns on invested capital, consistently exceeding 15% for many years before declining in 2024 and 2025. These high returns reflect the strength of the company's business model and competitive advantages rather than simply favorable market conditions. Several structural characteristics explain why Novonesis has historically produced high ROIC. First, the company operates a highly asset-efficient business. It develops enzymes, microorganisms, cultures, and other biosolutions that typically account for only 1% to 5% of its customers' cost of goods sold but often generate significant savings through higher yields, lower energy consumption, reduced waste, and improved product quality. Because the value created for customers is many times greater than the cost of the biosolutions themselves, Novonesis enjoys strong pricing power and attractive margins. Second, the company benefits from a unique intellectual property portfolio and scientific platform that can be leveraged across more than 30 different industries. Once a new microorganism or enzyme has been discovered and commercialized, the underlying scientific knowledge can often be applied to multiple applications, allowing Novonesis to generate significant earnings without proportionally increasing its capital base. This scalability contributes to high returns on invested capital. Third, Novonesis has built one of the world's largest proprietary libraries of microorganisms and enzyme structures, supported by more than a century of expertise in microbiology and industrial fermentation. Combined with more than 10.000 patents and decades of accumulated data, this creates a powerful competitive advantage that allows the company to innovate efficiently and maintain long-term customer relationships. Since many of its solutions are deeply integrated into customers' production processes, switching costs are high, supporting stable profitability over time. The decline in reported ROIC during 2024 and 2025 does not necessarily indicate that the underlying business has weakened. Instead, it is largely a consequence of the merger between Novozymes and Chr. Hansen that created Novonesis. The merger significantly increased the amount of capital tied up in the business while also introducing acquisition-related accounting expenses that reduced reported earnings. Because ROIC measures how much profit a company generates relative to the capital invested in the business, a larger capital base combined with temporarily lower accounting profits naturally resulted in a lower reported return. The underlying business is already moving in the right direction. Management has highlighted that profitability improved in 2025 as the company benefited from better margins and continued integration of the merger. In other words, while the reported ROIC remains lower than it was historically, the operating performance is improving, suggesting that ROIC should gradually recover as the benefits of the merger are realized. Looking ahead, I expect ROIC to improve as Novonesis continues combining the strengths of the two companies and benefits from higher profitability. Management has made improving returns on capital a key priority and has set ambitious long-term targets for both growth and profitability. At the same time, the company continues to invest heavily in research and development, artificial intelligence, and its production capabilities, which should strengthen its competitive advantages and support higher returns over time. Therefore, I do not view the recent decline in ROIC as a sign that the business has become weaker but rather as a temporary consequence of the merger.

The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year.  Novonesis' equity has generally been stable over the past decade, although the development looks unusual because of the merger between Novozymes and Chr. Hansen in 2024. The enormous increase of 480.7% that year does not mean the company suddenly created five times more value. Instead, it reflects that the two companies combined into one, with the assets and shareholder capital of both businesses being brought onto the balance sheet. The merger was completed by issuing new shares to Chr. Hansen's shareholders, who then became owners of the combined company, resulting in a much larger equity base. The small decline in 2025 should not be viewed as a sign of weakness. During the year, Novonesis generated a healthy profit, but part of that value was returned to shareholders through dividends and share buybacks, while currency movements also reduced the reported equity. As a result, total equity ended the year slightly lower despite the company remaining profitable. Looking ahead, I expect equity to increase over time as Novonesis continues to grow its earnings and retains part of those earnings in the business. However, the growth is unlikely to be as smooth as before because management may continue returning excess capital to shareholders through dividends and share buybacks. Therefore, occasional declines in equity should not necessarily be interpreted as a deterioration in the underlying business, especially for a company that generates strong cash flows and has attractive long-term growth opportunities.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Novonesis has historically generated strong free cash flow and attractive free cash flow margins. This is largely a result of the company's business model, which combines high profitability, relatively modest capital requirements, and products that create significant value for customers. Its enzymes, microorganisms, cultures, and other biosolutions typically represent only a small fraction of customers' production costs but can improve yields, reduce waste, lower energy consumption, and enhance product quality. Because the value created is much greater than the price paid, Novonesis is able to earn attractive margins that translate into strong cash generation. Another reason for the company's strong free cash flow is that once a biosolution has been developed and commercialized, it can often be produced and sold for many years across multiple customers and industries. This allows Novonesis to leverage its research and development investments over a broad range of applications while generating substantial cash from existing products. The company also benefits from efficient operations and a global fermentation platform that provides economies of scale and supports high profitability. Free cash flow reached record levels in 2025 despite a significant increase in investments. The improvement was driven primarily by stronger profitability, higher margins, and continued operational efficiencies. Lower energy costs, productivity improvements, and the successful integration of Novozymes and Chr. Hansen all contributed to stronger cash generation. At the same time, the company increased investments in expanding its production capacity to support future growth, demonstrating that the business is capable of generating substantial cash even while investing heavily. Looking ahead, I expect Novonesis to remain a strong generator of free cash flow. Management has announced that investments will temporarily increase over the next few years as the company expands its production facilities and upgrades its technology infrastructure to support future growth. These higher investments may limit short-term growth in free cash flow, but they are intended to increase capacity and strengthen the business for many years to come. Given the company's high margins, strong competitive position, and exposure to long-term growth trends such as healthier food, sustainable agriculture, and biological alternatives to traditional chemicals, I believe free cash flow should continue to grow over time. Novonesis uses its free cash flow in a balanced manner. First, it reinvests in the business by expanding production capacity, funding research and development, and investing in new technologies such as artificial intelligence. Second, it pursues acquisitions that strengthen its portfolio and long-term competitive position. Finally, the company returns capital to shareholders through dividends and, when appropriate, share repurchases. Management has committed to paying annual dividends corresponding to 40% to 60% of adjusted net profit while continuing to invest for future growth, a balanced capital allocation strategy that I view positively. The free cash flow yield suggests that while the shares are not trading at a low valuation, they are trading at one of their more attractive valuations in many years. However, we will revisit valuation later in the analysis.

Debt

Another important area to investigate is debt, and we want to see whether a business has a reasonable level of debt that could be paid off within three years. To assess this, we divide total long-term debt by earnings. When applying this measure to Novonesis, the result shows that it would take approximately 1,97 years of earnings to pay off its long-term debt. That is comfortably below the three-year benchmark I use, so debt is not a concern for me if I were to invest in Novonesis. It is also worth noting that the company's debt increased in 2025 because it acquired the remaining stake in its Feed Enzyme Alliance, a strategic acquisition that was partly financed through borrowing. Given Novonesis' strong cash generation, management expects debt levels to decline over time, which further supports my view that the company's financial position remains healthy.

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Risks

Macroeconomics and geopolitics is a risk for Novonesis because the company operates globally across research, manufacturing, supply chains, and customer markets. Its biosolutions are sold to customers in more than 30 industries around the world, meaning that disruptions to the global economy or international trade can affect both demand for its products and its ability to deliver them efficiently. While Novonesis benefits from a diversified business and geographic footprint, it is still exposed to factors outside its control. One important risk is the possibility of trade tensions, tariffs, sanctions, or other barriers to international commerce. Novonesis relies on a global network of production facilities and customers, so restrictions on cross-border trade could increase transportation costs, delay deliveries, or complicate international operations. Such disruptions could reduce profitability or make it more difficult for the company to execute its long-term strategy. Macroeconomic weakness can also affect demand for some of Novonesis' products. Although many of its biosolutions help customers save money and improve efficiency, some end markets are still influenced by consumer spending. If inflation, higher interest rates, or economic uncertainty reduce consumer confidence, demand for products such as dietary supplements or certain food-related applications may slow. Management has acknowledged that weaker consumer sentiment, particularly in the United States, could affect parts of its business, as consumers may postpone purchases or switch to lower-priced alternatives. Geopolitical instability creates additional uncertainty. Regional conflicts, deteriorating diplomatic relations, or sudden policy changes can disrupt global trade, increase business uncertainty, and complicate long-term investment decisions. For a company like Novonesis, which invests heavily in research, production facilities, and innovation projects that may take years to generate returns, a less predictable global environment can make strategic planning more challenging. In more severe cases, geopolitical developments could force the company to modify its operations or reconsider activities in certain markets. Finally, Novonesis generates revenue and incurs costs in many different currencies. Significant movements in exchange rates can therefore affect reported sales, earnings, and cash flows even when the underlying business performs well. While the company's global diversification helps reduce dependence on any single market, macroeconomic and geopolitical developments remain risks that could influence its financial performance and long-term growth.

Energy and raw materials is a risk for Novonesis because the company's production processes rely on large amounts of energy and a wide range of biological and agricultural inputs. Its biosolutions are produced through industrial fermentation, a process that requires controlled environments, specialized equipment, and significant energy consumption. As a result, increases in energy prices can raise production costs and put pressure on profitability. Novonesis also depends on various raw materials, such as sugars, nutrients, and other ingredients that microorganisms need during the fermentation process. The prices of these inputs can fluctuate significantly due to factors such as poor harvests, extreme weather events, supply disruptions, or changing global demand. If the cost of these materials rises sharply, Novonesis may face higher production costs before it is able to adjust prices for its customers. Transportation and logistics costs represent another source of risk. The company operates a global manufacturing and distribution network, supplying customers across more than 30 industries and many different countries. Rising fuel prices or disruptions to global shipping networks can therefore increase the cost of delivering products and reduce margins. Although Novonesis has historically demonstrated strong pricing power because its biosolutions typically account for only a small percentage of its customers' production costs while creating significant value, there is often a delay between higher input costs and price increases. During this period, profitability may temporarily come under pressure. In addition, some customer contracts or competitive conditions may limit how quickly the company can pass higher costs on to customers. Finally, prolonged shortages or disruptions in the supply of key inputs could affect production efficiency or delay the manufacturing of certain products. While Novonesis benefits from a diversified global production footprint and long-standing supplier relationships, energy and raw material markets remain inherently volatile. Consequently, significant increases in energy or input costs could negatively affect the company's margins, cash generation, and financial performance.

Cyberattacks is a risk for Novonesis because the company relies heavily on digital infrastructure, advanced research capabilities, and proprietary scientific knowledge to develop and manufacture its biosolutions. As one of the global leaders in industrial biotechnology, Novonesis possesses valuable intellectual property, including proprietary microbial strains, enzyme libraries, patented technologies, and decades of scientific data. This makes the company an attractive target for cybercriminals, industrial espionage, and even state-sponsored cyberattacks seeking to obtain commercially valuable information. One important risk is the theft of intellectual property. Novonesis has built its competitive advantage over more than a century through research and development and maintains one of the world's largest proprietary collections of microorganisms and enzyme structures. If confidential research data, trade secrets, or technological know-how were stolen, competitors could potentially benefit from years of scientific work without making the same investments themselves. Such an event could weaken one of the company's most important competitive advantages. Cyberattacks can also disrupt day-to-day operations. Novonesis operates a global network of research centers, production facilities, and distribution operations that depend on reliable IT systems. An attack on these systems could temporarily halt manufacturing, delay shipments, interrupt communication with customers and suppliers, or prevent employees from accessing critical information. Even relatively short disruptions could result in lost sales, higher costs, and damage to customer relationships. The increasing digitalization of the business further elevates this risk. Novonesis is investing heavily in artificial intelligence and advanced data analysis to accelerate research and improve production processes. While these technologies strengthen the company's competitive position, they also increase its dependence on secure and reliable digital systems. As more critical business functions become integrated with technology, the potential consequences of a successful cyberattack become greater. The company itself has identified cyber threats as one of its highest-probability risks, reflecting the growing sophistication and frequency of attacks worldwide. In addition to targeted attacks, Novonesis could also be affected by broader cyber warfare or attacks on critical infrastructure that indirectly disrupt its operations or those of important business partners. Although the company invests significantly in cybersecurity and risk management, no system can be completely immune.

Reasons to invest

Global trends in health, nutrition, and sustainability is a reason to invest in Novonesis because these long-term trends are increasing demand for the types of biosolutions the company develops. Around the world, consumers, food manufacturers, governments, and regulators are placing greater emphasis on healthier diets, more sustainable production methods, reduced food waste, and lower environmental impact. As one of the global leaders in biosolutions, Novonesis is well positioned to benefit from these structural shifts that are likely to play out over many years rather than being driven by short-term economic cycles. One of the strongest trends is the growing demand for healthier and more nutritious food. Consumers are increasingly looking for products that contain more protein, less sugar, cleaner ingredient labels, and fewer artificial additives. This creates opportunities for Novonesis because its enzymes and microbial cultures help food manufacturers improve taste, texture, shelf life, and nutritional content while using more natural production methods. The company has already seen strong demand for solutions that enable higher-protein dairy products, healthier baked goods, and products with reduced sugar content without compromising quality. Another important growth driver is the increasing popularity of plant-based foods and alternative proteins. As consumers seek more sustainable sources of nutrition, food manufacturers must develop products that closely resemble traditional meat and dairy in terms of taste and texture. Novonesis provides specialized enzymes and microbial solutions that help improve these characteristics, allowing producers to create better products while accelerating innovation. Management has highlighted continued strong growth in this area and believes it represents one of the fastest-growing segments of the market. Health and wellness trends extend beyond food into dietary supplements and advanced nutrition. Consumers are becoming increasingly focused on preventive healthcare, gut health, immunity, and healthy aging, driving demand for probiotics and other scientifically supported nutritional solutions. Novonesis has reported strong growth in its Human Health business, particularly within Dietary Supplements and Advanced Health & Nutrition, where products such as human milk oligosaccharides and advanced protein solutions continue to gain traction. As populations age and healthcare increasingly focuses on prevention rather than treatment, these markets could continue expanding for many years. Sustainability is another powerful tailwind. Governments and businesses worldwide are working to reduce carbon emissions, lower energy consumption, minimize waste, and replace traditional chemical processes with more sustainable alternatives. Novonesis' biosolutions help address many of these challenges by reducing food waste through longer shelf life, improving agricultural yields, lowering the need for chemicals, enabling cleaner fuels, and making industrial processes more resource efficient. In many cases, biological solutions can achieve these improvements while simultaneously reducing costs for customers, making adoption economically attractive as well as environmentally beneficial.

Innovation is a reason to invest in Novonesis because the company’s ability to develop new biosolutions is the foundation of its long-term growth and competitive advantage. Unlike many companies that primarily compete on price or scale, Novonesis creates value by solving complex problems for its customers through biology. Whether the objective is healthier food, higher crop yields, cleaner energy, or lower resource consumption, innovation allows the company to continuously expand its addressable market while deepening relationships with existing customers. The company has an impressive track record of translating research into commercial products. In 2025 alone, Novonesis launched 33 new biosolutions across industries such as food, beverages, human health, household care, energy, and agriculture, and management expects to launch at least 30 new products annually going forward. Importantly, these innovations are not incremental improvements but often address major global trends such as cleaner-label foods, higher-protein products, reduced sugar content, lower energy consumption, and more sustainable industrial processes. Approximately 25% of the company's revenue now comes from products launched within the last five years, exceeding management's long-term ambition and demonstrating that innovation is a meaningful driver of growth rather than simply a research exercise. One example is Galaya Smooth, which combines enzymes and cultures to enable dairy producers to create smoother, higher-protein products with cleaner ingredient labels. Another example is Javora Enhance, a solution for instant coffee producers that increases yields by up to 10% while improving quality and sustainability. The company has also developed new enzyme solutions for cold and quick laundry cycles, allowing consumers to save both energy and time while maintaining cleaning performance. In bioenergy, new yeast technologies improve ethanol yields under difficult fermentation conditions, while innovations in vegetable oil processing help customers increase production and reduce costs. These examples illustrate how Novonesis continually develops solutions that create measurable economic value for its customers. Innovation is also strengthened by the company's ability to combine technologies across its expanded portfolio following the merger between Novozymes and Chr. Hansen. Management has highlighted that bringing together enzymes, cultures, probiotics, and other biological solutions enables entirely new combinations that neither company could previously offer on its own. This cross-selling and cross-fertilization of technologies creates additional opportunities for innovation while strengthening customer relationships. Perhaps the most exciting aspect of Novonesis' innovation engine is its use of artificial intelligence. The company possesses proprietary libraries containing more than 100.000 microbial strains and more than 15 million enzyme structures, along with decades of experimental and production data that competitors do not have access to. AI allows Novonesis to analyze this enormous dataset to identify promising solutions much faster than traditional research methods. According to management, certain development processes that previously required months or even years can now be completed in less than a minute or reduced from years to just months. This enables researchers to test more ideas, identify better candidates, and accelerate commercialization while reducing experimental work. Importantly, AI appears to strengthen rather than replace Novonesis' existing competitive advantages. Artificial intelligence is only as valuable as the data used to train it, and the company believes its proprietary biological database provides a significant advantage over competitors that rely primarily on publicly available information. Management has stated that the more data Novonesis generates through research and commercial applications, the more effective its AI models become, creating a self-reinforcing cycle where innovation generates new data, which in turn enables even faster and better innovation.

Emerging markets is a reason to invest in Novonesis because these economies are expected to become an increasingly important driver of the company’s long-term growth. Countries such as India, Brazil, and many parts of Asia, Latin America, and Africa are experiencing rising populations, urbanization, higher incomes, and growing demand for better nutrition, improved agricultural productivity, and more sustainable industrial processes. These trends align closely with the products and technologies that Novonesis provides, giving the company a significant opportunity to expand its business over many years. The company is already benefiting from this trend. In 2025, emerging markets delivered 9% growth, outperforming many developed markets, and management expects these regions to continue growing faster than the overall company through 2030. Today, emerging markets already account for approximately one-third of Novonesis' business, and management believes this share will increase over time as these economies continue to develop and adopt more advanced biosolutions. An important reason for this growth is Novonesis' strategy of being close to its customers. Rather than simply exporting products developed elsewhere, the company invests heavily in local commercial teams and works directly with customers to develop solutions tailored to regional needs. During 2025, Novonesis added around 400 employees in customer-facing and commercial roles, with roughly two-thirds of these hires located in emerging markets. This local presence strengthens customer relationships, improves understanding of regional challenges, and enables faster adoption of new biosolutions. Emerging markets also provide opportunities across several of Novonesis' business areas. As living standards improve, demand for higher-quality food, dietary supplements, and healthier nutrition continues to rise. At the same time, growing populations increase the need for more efficient agriculture and food production, creating demand for biosolutions that improve yields while reducing waste and resource consumption. In household care, increased penetration of enzyme-based detergents offers another avenue for growth as consumers seek better-performing and more sustainable products. The energy segment also illustrates the opportunity. Countries such as Brazil and India continue expanding biofuel production as they seek greater energy security and lower carbon emissions. Novonesis supplies enzymes and microorganisms that help customers produce ethanol and other biofuels more efficiently, and management has highlighted continued momentum in these markets. As governments increasingly support renewable energy and domestic fuel production, demand for these biosolutions could continue to grow. Importantly, many emerging markets remain underpenetrated in terms of biosolutions adoption. In many industries, there is still significant room to increase the use of enzymes, cultures, and microorganisms that improve efficiency and sustainability. This means Novonesis can grow not only because these economies themselves are expanding, but also because the penetration of its products within those markets is increasing over time.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 9,33, which is from the year 2025. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 19,6% over the next five years, but 15% is the highest number I use. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Novonesis's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 279,90. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Novonesis at a price of DKK 139,95 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 9.120, and capital expenditures were 3.060. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 2.142 in our calculations. The tax provision was 1.196. We have 465,6 outstanding shares. Hence, the calculation will be as follows: (9.120 – 2.142 + 1.196) / 465,6 x 10 = DKK 175,56 in Ten Cap price. 

The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Novonesis' free cash flow per share at DKK 13,02 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 205,53.

Conclusion

I believe that Novonesis is an intriguing company with a great management team. It has built its moat through its scientific leadership, proprietary biological assets, intellectual property, customer relationships, and global fermentation capabilities. The company has historically achieved a high ROIC, but ROIC has declined in the past two years because of the merger with Chr. Hansen. However, ROIC is expected to improve moving forward. Novonesis has also historically generated high free cash flow and free cash flow margins, which is a trend that is expected to continue. Macroeconomics and geopolitics is a risk for Novonesis because the company operates globally and depends on international trade, making it vulnerable to trade tensions, tariffs, geopolitical conflicts, and weaker consumer spending. These factors can disrupt operations, reduce demand in certain end markets, increase costs, and create uncertainty that may affect the company's financial performance and long-term growth. Energy and raw materials is a risk for Novonesis because its fermentation-based production depends on energy and key inputs such as sugars and nutrients, whose prices can be volatile. Sharp increases in these costs or supply disruptions can temporarily pressure margins and profitability, as the company may not be able to immediately pass higher costs on to customers. Cyberattacks is a risk for Novonesis because the company relies heavily on digital systems and valuable proprietary scientific data, making it an attractive target for cybercriminals and industrial espionage. A successful attack could disrupt operations, delay production and deliveries, or compromise intellectual property that underpins the company's competitive advantage. Global trends in health, nutrition, and sustainability is a reason to invest in Novonesis because consumers and businesses are increasingly demanding healthier foods, better nutrition, and more sustainable production methods. As a global leader in biosolutions, Novonesis is well positioned to benefit from these long-term trends through products that improve nutrition, reduce waste, lower resource consumption, and replace traditional chemical processes. Innovation is a reason to invest in Novonesis because the company continuously develops new biosolutions that address major global trends while strengthening its competitive advantage and expanding its addressable market. Its extensive proprietary biological data and use of artificial intelligence accelerate product development, enabling Novonesis to bring innovative solutions to market faster and maintain its leadership in biosolutions. Emerging markets is a reason to invest in Novonesis because these regions are expected to grow faster than developed markets, driven by rising incomes, urbanization, and increasing demand for better nutrition, sustainable agriculture, and biofuels. With emerging markets already representing about one-third of its business and management investing heavily in local teams and tailored solutions, Novonesis is well positioned to benefit from both economic growth and increasing adoption of its biosolutions. I believe Novonesis is an excellent company, and buying shares at the intrinsic value of the Margin of Safety price of DKK 279 would be a good long-term investment.

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