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Investing.com -- Barry Callebaut AG was downgraded to “hold” from “buy” rating by Berenberg, which cited that the expected cash flow benefits from easing cocoa costs are already reflected in consensus estimates.
The brokerage also pointed to longer-term risks in cocoa supply from Ivory Coast, the world’s top producer, that could weigh on the Swiss chocolate and cocoa manufacturer’s outlook.
Berenberg raised its price target on Barry Callebaut to CHF1,200 but warned that deteriorating structural issues in the Ivorian cocoa industry could drive cocoa prices higher for longer.
The brokerage’s survey of cocoa farmers found that 37% reported the presence of cocoa swollen shoot virus, which kills infected trees, while 80% said they had not applied fertilizer this year. Both factors threaten future crop yields and supply growth.
Although Barry Callebaut operates on a cost-plus model that shields earnings from direct swings in cocoa prices, Berenberg said the company’s cash flow is exposed.
Lower cocoa prices support cash generation through inventory valuation and working capital release, while higher prices drain liquidity.
The brokerage forecasts Barry Callebaut’s net debt to adjusted EBITDA ratio will improve from 5.6x at the end of fiscal 2025 to 4.7x at the end of fiscal 2026.
Berenberg adjusted its fiscal 2026 cash flow forecast to reflect cocoa pricing assumptions, projecting about £300 million of working capital release tied to lower inventory values, which would result in 1.8x deleveraging.
Its adjusted EBIT forecast remains largely in line with Visible Alpha consensus estimates.
Barry Callebaut trades at 16.3 times 12-month forward earnings, according to Berenberg, with shares having re-rated by about 6x over the last six months.
The analysts warned that supply risks from El Niño weather effects or crop disease could put further pressure on cocoa prices. It also flagged that swings in cocoa inventories and foreign exchange remain potential headwinds.