Novonesis: Science Driving Sustainable Growth

Novonesis is a global leader in biosolutions, born from the merger of Novozymes and Chr. Hansen. With a broad portfolio spanning food, health, agriculture, and sustainable industry, the company uses cutting-edge biology to meet growing demand for natural and efficient alternatives. As global trends shift toward clean-label, high-protein, and low-sugar solutions, Novonesis is well-positioned to benefit. The question is: Does this biosolutions powerhouse deserve a place 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 is a global leader in biosolutions, formed through the merger of Novozymes and Chr. Hansen. With a heritage of over a century in industrial biotechnology, the company focuses exclusively on biological innovations that support healthier lives and a healthier planet. Its operations span across food, health, agriculture, energy, and household care, with roughly equal revenue contribution from Food & Health Biosolutions and Planetary Health Biosolutions. In food and health, Novonesis provides enzymes, probiotics, cultures, proteins, and HMOs that enhance taste, texture, nutrition, and shelf life while also supporting human health across all life stages. In planetary health, its solutions reduce the use of fossil-based resources and chemicals, increase energy efficiency, and promote sustainable agriculture and transportation. The company’s moat is rooted in its scientific leadership, proprietary microbial strain library, and deep expertise in fermentation. Its extensive R&D capabilities enable it to develop highly tailored solutions in close collaboration with customers, strengthening long-term relationships and creating high switching costs. Novonesis also benefits from a global and agile production setup, with more than 30 manufacturing sites across four continents and a supply chain that can efficiently shift capacity across markets and product types. This flexibility provides resilience and cost efficiency in a dynamic global environment. By focusing solely on biosolutions, Novonesis channels its capital and innovation efforts into one domain, maximizing impact and return on investment. The company is aligned with long-term structural trends such as decarbonization, food system transformation, and preventative health. With a market opportunity estimated at over €20 billion and growing, Novonesis is positioned to expand both through innovation in core segments and by entering adjacent markets. Its combination of scientific depth, customer intimacy, scalable operations, and sustainability alignment gives it a wide and durable moat in a market where demand for biological alternatives continues to rise.

Management

Ester Baiget serves as the CEO of Novonesis, a position she has held since joining the company in 2020. With over 25 years of international experience in both technical and commercial roles, she brings a strong combination of scientific expertise and strategic leadership to the biosolutions industry. Prior to leading Novonesis, Ester Bait held a range of senior leadership positions across global industrial and chemical companies, where she consistently drove transformational change, improved profitability, and laid the groundwork for long-term sustainable growth. Ester Baiget holds a degree in chemical engineering as well as an MBA from Rovira i Virgili University in Spain. Her leadership style is anchored in a culture of inclusion, engagement, and performance. She is widely recognized for integrating sustainability at the core of business strategy and operations, and she has been acknowledged as a global climate leader by Forbes and Time Magazine. Under her leadership, Novonesis has sharpened its focus on delivering innovative, science-based solutions that address the world’s most pressing environmental and health challenges. In addition to her role at Novonesis, Ester Baiget serves as a member of the Supervisory Board at AkzoNobel N.V., the Board of the United Nations Global Compact, and the Board of Trustees of the Science Based Targets initiative. Her combination of technical depth, commercial acumen, and global perspective positions her well to lead Novonesis through its next chapter as a pure-play leader in biosolutions.

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. ROIC has consistently been well above 15% over the past decade, except for in 2024. The drop in Novonesis’s ROIC in 2024 was mainly due to its merger with Chr. Hansen. When the two companies joined, Novonesis took on a lot of new assets - like brand value and patents - that don’t directly generate cash but still count toward the total investment in the business. The merger also brought higher accounting costs, such as depreciation and amortization, which reflect the aging of assets and the value of things like intellectual property. These added expenses reduced reported profits, even though the underlying business remained solid. As a result, ROIC - how efficiently the company turns investment into profit - went down. That said, Novonesis still delivered 8% organic sales growth in 2024 and improved its profit margins. The company expects margins to keep improving in 2025, which should help ROIC recover as the short-term effects of the merger fade. It’s also worth noting that Novonesis emphasizes ROIC as a key financial metric, which I view as a positive sign. I like companies that focus on generating strong returns on the capital they invest.

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. I don't have the growth rate from 2014 to 2015 as Finbox only provides data for the past ten years. Equity has grown in most years over the past decade, but it increased significantly in 2024 due to the merger between Novozymes and Chr. Hansen. This capital increase wasn’t a typical cash injection. Instead, it reflects how Novozymes issued new shares to complete the merger, which was finalized and registered on January 29, 2024. By doing this, Novozymes effectively absorbed Chr. Hansen, and Chr. Hansen’s shareholders became part owners of the combined company. This added a large amount to the equity line on the balance sheet without a direct inflow of cash - hence, the sharp rise.

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. It is not surprising that Novonesis has generated positive free cash flow every year for the past decade. The company delivered a record high in 2024, driven by three key factors: improved operational performance, lower net investment, and better working capital management. The core business performed strongly, resulting in higher cash earnings. At the same time, the company spent less on acquisitions or major investments compared to the prior year. Additionally, Novonesis received a large upfront payment from a key customer in its Advanced Protein Solutions business. This one-time payment, received early in the year, provided an extra boost to cash flow. While the levered free cash flow margin hasn’t reached previous peak levels, it is now at its highest point since 2021 - which is an encouraging sign. The company uses its free cash flow to reinvest in operations, repurchase shares, and pay dividends. As free cash flow continues to grow, investors should benefit from the steady value being returned to shareholders. The free cash flow yield is at its highest level since 2020. However, the current level suggests that the shares are trading at a premium valuation. 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 2,99 years of earnings to pay off its long-term debt. That’s just below the three-year benchmark I use, so debt is not a concern for me if I were to invest in Novonesis. That said, Novonesis uses a different measure: net debt-to-EBITDA. As of now, that ratio stands at 1, which is below their target range of 1,3 to 1,7. This suggests that the company currently has more room to take on debt. And in fact, the ratio is expected to rise in 2025 due to an upcoming acquisition. Novonesis plans to buy out dsm-firmenich’s share of the Feed Enzyme Alliance, and this deal will be fully financed with debt. It will add €1,5 billion to net debt, increasing the net debt-to-EBITDA ratio by about one turn - from 1 to around 2. This would push the company above its target range, at least temporarily. However, this doesn’t concern me much. Management expects strong cash generation to continue and believes they can reduce the debt load back into the 1,3 to 1,7 range within two years of the deal closing. That level of confidence, supported by their historical cash flow performance, makes the temporary increase in leverage acceptable from my perspective.

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Risks

Macroeconomics and geopolitics is a risk for Novonesis due to the company’s global presence across supply chains, manufacturing, and customer markets. Escalating trade tensions, sanctions, or tariffs can disrupt international trade flows, affecting the availability and cost of raw materials, production inputs, and logistics. These disruptions may lead to higher operational costs or delays in delivering products to customers. Geopolitical instability - such as regional conflicts or shifts in diplomatic relations - can also create broader uncertainty in financial markets, impact exchange rates, and reduce overall business confidence. For Novonesis, which invests heavily in long-term research, infrastructure, and strategic planning, such uncertainty can hinder its ability to make optimal decisions beyond the short term. In more severe cases, geopolitical developments might force the company to exit certain markets or reconsider partnerships, which could limit growth opportunities or require costly adjustments. Regulatory divergence and shifting compliance requirements across regions can further complicate cross-border operations, particularly for a company delivering biosolutions subject to strict health, safety, and environmental standards. Currency volatility also poses a risk to earnings, as Novonesis operates in numerous markets with different currencies, and fluctuations can affect both revenue and cost bases. While Novonesis benefits from a diversified footprint, its exposure to the global economy means that shifts in macroeconomic or political conditions - such as inflation surges, interest rate hikes, or sudden trade barriers - can have meaningful consequences on its operations, investment strategy, and long-term value creation.

Energy and raw materials represent a key risk for Novonesis due to the company’s reliance on a wide range of inputs for its fermentation-based production processes. The markets for commodities and energy are highly volatile and can be heavily influenced by global supply-demand imbalances, extreme weather events, and geopolitical tensions. Sharp increases in the price of energy, utilities, or essential raw materials - such as sugars, nutrients, or other fermentation inputs - can significantly raise the company’s production costs. Novonesis operates with a global manufacturing footprint, and many of its supply agreements are variable in nature, meaning prices are not fixed over long periods. In a dynamic market environment, this creates exposure to sudden cost increases that can erode gross margins and reduce profitability. Additionally, fluctuations in fuel and transport costs can impact the logistics of sourcing inputs and distributing finished products, further contributing to volatility in earnings. While the company may be able to pass some of these higher costs on to customers over time, there is often a lag between input cost inflation and price adjustments, which can pressure margins in the short term. For a company focused on high-quality and sustainable biosolutions, any disruption in the availability or affordability of key inputs can also affect product quality, delivery timelines, or R&D timelines for new innovations. In short, the combination of volatile global markets, flexible pricing arrangements, and dependence on stable input supplies makes energy and raw material costs a meaningful risk for Novonesis’s financial performance and operational efficiency.

Cyberattacks are a serious risk for Novonesis, particularly because of the company’s reliance on advanced technologies, digital infrastructure, and proprietary scientific data. As a leading biosolutions provider, Novonesis manages valuable intellectual property - including proprietary microbial strains, patented processes, and confidential R&D data - which are prime targets for cybercriminals or hostile entities engaged in cyber warfare. A successful breach could result in the theft of trade secrets, competitive knowledge, or sensitive customer and supplier data. The risk is not limited to information theft. Cyberattacks can also cause material disruptions to business operations. For example, attacks on IT systems, manufacturing controls, or logistics networks could halt production, delay shipments, or prevent access to essential operational systems. In a global company with more than 30 production sites and customers across multiple continents, even short periods of downtime could translate into significant financial losses and reputational damage. The company has flagged this as the risk with the highest probability, highlighting management’s awareness of the growing sophistication and frequency of cyber threats. The risk is further elevated by increasing global cyber warfare activity - meaning Novonesis could be impacted not just by direct targeting, but also by collateral damage in broader attacks aimed at critical infrastructure or industry peers. In a world where biological innovation and digital systems are increasingly intertwined, a strong cyber defense is essential. Any failure in this area could compromise not just Novonesis’s ability to operate day-to-day, but also its long-term competitive advantage and trust with stakeholders.

Reasons to invest

The merger between Novozymes and Chr. Hansen to form Novonesis is a major reason to consider the company as an investment opportunity. Together, the two legacy businesses have created a pure-play global leader in biosolutions, with a broader portfolio, greater scientific depth, and expanded reach than either company had on its own. One of the most compelling aspects of the merger is the rapid progress in unlocking synergies. On the cost side, Novonesis has already achieved an 80% run rate of its three-year cost synergy target of €80–90 million within the first year - well ahead of schedule. This kind of efficiency improvement enhances profitability and shows that the integration is being executed with strong discipline and focus. Synergies are already visible in high-impact areas such as dairy, plant-based products, silage, and human health, where the combination of Chr. Hansen’s microbial capabilities with Novozymes’ enzyme expertise is leading to new, value-added offerings. The combined pipeline now enables Novonesis to deliver more holistic, tailor-made solutions to customers - what management refers to as “Strain to Solution.” By combining proprietary strains from both legacy companies, Novonesis can develop customized, high-performance biosolutions that are difficult for competitors to replicate. This deeper integration with customer needs not only supports growth but also strengthens long-term partnerships. Operationally, the merger is enabling Novonesis to scale more effectively. The combined commercial teams are reaching more customers, expanding geographic coverage, and building momentum across multiple end-markets. With enhanced co-creation capabilities and a larger, better-coordinated sales force, the company is positioned to accelerate market penetration and unlock new growth opportunities globally. Importantly, this integration is being carried out without compromising business continuity or customer responsiveness. Management has emphasized a seamless transition, with strong collaboration across functions helping to preserve trust and deepen engagement. This level of execution reflects a culture of accountability and performance, which supports confidence in the company’s ability to deliver on its long-term growth targets.

Innovation is a core reason to consider investing in Novonesis. As a biosolutions company, its ability to consistently develop and commercialize new products is not only central to its value proposition, but also a key driver of growth, profitability, and long-term relevance. In 2024 alone, Novonesis launched 45 new biosolutions across industries and geographies, with nearly 30% of its revenue coming from products introduced within the past five years. This steady output reinforces the company’s position as a leader in bioscience innovation. What sets Novonesis apart is not just the volume of product launches, but the strategic depth of its innovation model. The company manages a portfolio of over 200 R&D programs, each evaluated based on its timeline, risk profile, and potential return. Some innovations - such as customized enzymes or microbial blends - deliver payback within a year, while others, including BioAg, human health, or enzymatic plastic recycling solutions, represent longer-term, transformative opportunities. Innovation at Novonesis is deeply customer-centric. The company works closely with clients to understand their specific needs and co-develop solutions that deliver measurable outcomes. This co-creation model involves rapid prototyping, application testing, and ongoing iteration based on real-world data. Recent examples include supporting a multinational snack producer in reducing waste and production costs through enzymatic solutions, and helping a dairy company in China develop localized cheese products tailored to consumer preferences. The innovation pipeline spans both established and emerging industries, from household care, dairy, and baking to carbon capture, plastic recycling, plant-based food, and Human Milk Oligosaccharides (HMOs). Novonesis draws on a vast biological toolbox—over 100,000 microbial strains and more than six million unique enzyme structures—enabling rapid development of high-impact solutions across diverse applications. This commitment to innovation is backed by significant financial investment. Novonesis reinvests approximately 11% of annual sales into R&D, totaling around €400 million per year. This sustained commitment helps ensure the company remains at the forefront of biosolutions and continues to introduce high-margin, differentiated products that support long-term competitive advantage.

Global trends in health, nutrition, and sustainability are creating strong tailwinds for Novonesis, making them a compelling reason to invest in the company. Shifts in consumer preferences, food industry reformulations, and evolving health regulations are accelerating demand for natural, bio-based solutions - an area where Novonesis is uniquely positioned. One of the most prominent trends is the rise of plant-based foods, which continues to gain traction worldwide. In 2024, Novonesis reported growing activity and momentum with customers in this space, driven by its ability to combine microbial cultures and enzymes to enhance taste, texture, and nutritional value in plant-based products. This integrated approach addresses key consumer concerns - flavor, mouthfeel, and clean labels - while enabling food producers to innovate more rapidly in a highly competitive category. Another powerful driver is the global protein trend, as consumers increasingly seek high-protein options, especially in functional and on-the-go products like yogurt drinks. Novonesis has seen strong success here, offering tailored enzyme and culture solutions that support protein enrichment without compromising taste or texture. Its expanding involvement in Advanced Protein Solutions reflects both rising customer demand and the company’s ability to scale production effectively. The push to reduce sugar in food and beverages is also gaining pace, particularly in North America, where new public health initiatives are expected to drive reformulation across multiple categories. Novonesis is already seeing increased demand for enzymatic solutions that help lower sugar content while maintaining flavor - particularly in yogurts and bakery products. These solutions offer a more natural alternative to artificial sweeteners, aligning well with consumer preferences for less sugar, healthier nutrients, and cleaner labels. Together, these global trends point to a growing need for biosolutions that deliver health benefits without compromising quality or performance. Novonesis’s expertise in enzymes and microbes, combined with its deep application know-how, places it at the center of this transformation. Whether it’s helping brands develop protein-enriched yogurts, reduce sugar in baked goods, or launch next-generation plant-based products, Novonesis plays a critical role in enabling food and beverage companies to meet evolving consumer expectations.

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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 8,21, which is from the year 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 22,4% 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 246,30. 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 123,15 (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 7.606, and capital expenditures were 2.523. 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 1.766 in our calculations. The tax provision was 830. We have 464,6 outstanding shares. Hence, the calculation will be as follows: (7.606 – 1.766 + 830) / 464,6 x 10 = DKK 143,56 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 10,94 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 172,20.

Conclusion

I believe that Novonesis is an intriguing company with great management. It has a moat through its scientific leadership, proprietary microbial strain library, and deep expertise in fermentation. The company has consistently achieved a high ROIC, and the only decline came in 2024 as a result of the merger with Chr. Hansen. In that same year, Novonesis delivered record-high free cash flow and achieved its highest levered free cash flow margin since 2020. Macroeconomics and geopolitics are risks for Novonesis because the company operates globally across supply chains, manufacturing, and customer markets, making it vulnerable to trade disruptions, currency volatility, and regulatory changes. These factors can increase costs, delay operations, and create uncertainty that complicates long-term planning and growth initiatives. Energy and raw materials also pose a risk due to Novonesis’s reliance on fermentation-based production, which depends on volatile inputs such as energy, sugars, and nutrients. Sudden price swings or supply shortages can pressure margins and affect the company’s ability to deliver high-quality biosolutions efficiently. Cyberattacks are another significant risk. Novonesis depends heavily on digital infrastructure and proprietary data, making it a potential target for cybercriminals or fallout from broader cyber warfare. A successful attack could disrupt operations, compromise intellectual property, and damage customer trust - posing both short-term and long-term threats. The merger between Novozymes and Chr. Hansen is a key reason to invest in Novonesis, as it has created a global biosolutions leader with a broader portfolio, greater reach, and clear synergies already boosting profitability and growth. Innovation is also central to the company’s value. Novonesis consistently brings high-impact biosolutions to market, with nearly 30% of revenue coming from products launched in the past five years. Backed by significant R&D investment and a portfolio of over 200 active programs, the company combines scientific depth with customer co-creation to drive long-term growth and maintain a competitive edge. In addition, global trends in health, nutrition, and sustainability are driving strong demand for natural, bio-based solutions - an area where Novonesis is especially well-positioned. With expertise in enzymes and microbes, the company is helping food and beverage producers meet rising consumer expectations for plant-based, high-protein, and lower-sugar products, making these trends a powerful tailwind for future growth. Overall, I believe Novonesis is a great company. I plan to buy shares at DKK 275, which would give me a 20% discount to intrinsic value based on the Payback Time price. At that level, I believe it will be a good long-term investment.

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