Lindt & Sprüngli

Executive Summary

Investment Thesis in 3 Sentences: Lindt & Sprüngli is the global leader in premium chocolate with 40% market share, 175+ years of brand heritage, and demonstrated pricing power (100% premium over mass-market in US). The company passes every Buffett quality test: ROE 15.76%, conservative balance sheet (D/E 0.24x), 29 consecutive dividend increases, and vertically integrated operations. However, at P/E 47x, the stock offers no margin of safety - this is a WAIT for a better entry price.

---

PRE-ANALYSIS: SCREENING

Munger Anti-Checklist

Anti-Checklist Score: 1 minor caution flag - PASSES

Graham's 7 Criteria

Graham Score: 5/7 - Fails valuation criteria (quality business, expensive price)

Buffett Quality Criteria - PASSES

CRITICAL FINDING: ROE of 15.76% PASSES the Buffett threshold. This is a quality business. The issue is price, not quality.

---

PHASE 0: OPPORTUNITY IDENTIFICATION

Why Does This Opportunity Exist?

Assessment: There is no clear mispricing opportunity. The market correctly recognizes Lindt as a high-quality business and prices it accordingly. The "opportunity" would require waiting for:

1. A market correction that drags down all stocks
2. Cocoa crisis worsening beyond expectations
3. Multiple compression from current 47x to a more reasonable level

---

PHASE 1: RISK ANALYSIS (Inversion)

"How could this investment lose 50%+ permanently?"

1. Cocoa supply collapse: If the cocoa crisis (disease in West Africa, climate change) becomes permanent, input costs could structurally impair margins. Lindt's CEO said prices "will never come down to previous levels."

2. Brand erosion: If quality slips, or if private label/artisanal competitors capture the "premium" positioning, Lindt's pricing power could erode. This would take decades given 175 years of brand building.

3. Valuation compression: At P/E 47x, if the market re-rates Lindt to a "normal" consumer staples multiple of 20-25x, the stock could fall 40-50% even with no business deterioration.

4. GLP-1 obesity drugs impact: If Ozempic/Wegovy significantly reduce chocolate consumption, the entire confectionery industry could face structural demand decline.

What Would Make Me Sell Immediately?

1. Gross margin falling below 55% (currently 65%)
2. Market share loss in premium segment below 30%
3. Management making large, value-destroying acquisitions
4. Brand scandal affecting consumer trust
5. ROE declining below 12%

Bear Case in 3 Sentences

"Lindt is a wonderful company at a wonderful price - for existing shareholders. At P/E 47x, new buyers are paying for 10+ years of perfect execution with no room for error. The cocoa crisis has structurally raised input costs, and GLP-1 drugs could dampen chocolate demand, yet the stock trades near all-time highs."

Can I state this bear case better than the bears? Yes, but the bear case is fundamentally about valuation, not business quality. The business is excellent.

Risk Quantification

---

PHASE 2: FINANCIAL ANALYSIS

2024 Results

Analysis: Revenue growing organically at 7.8% despite cocoa headwinds. EBIT margin expanding despite input cost pressure - demonstrates pricing power. FCF margin of 11.6% is excellent for a consumer staples company.

Return Metrics - PASSES BUFFETT TEST

Key Insight: ROE has been stable around 15-16% for 15+ years. The business consistently earns above its cost of capital. This is exactly what Buffett looks for.

Balance Sheet - Fortress

Comparison to Peers:

• Hershey D/E: 3.0x
• Mondelēz D/E: 0.7x
• Lindt D/E: 0.24x

Lindt's conservative balance sheet is a competitive advantage - allows opportunistic M&A during crises and dividend stability.

Dividend Track Record

---

PHASE 3: MOAT ANALYSIS

Morningstar Wide Moat Rating - Confirmed

Lindt holds a Wide Moat rating from Morningstar, supported by:

Market Position

Moat Durability Test

Key Question: "Will this moat be wider or narrower in 10 years?"

Answer: STABLE TO WIDER

• Brand heritage compounds with time (175 years → 185 years)
• Vertical integration insulates from supply shocks better than competitors
• Premium segment growing faster than mass-market (6.8% CAGR)
• Cocoa crisis may consolidate industry (weak players exit)

Moat Assessment: WIDE - Full Position Eligible (at right price)

---

PHASE 4: MANAGEMENT & CAPITAL ALLOCATION

Ownership & Governance

Capital Allocation Track Record

Assessment: Textbook Buffett capital allocation. Returns cash to shareholders, makes selective acquisitions, invests in the business. No empire-building.

2025 Guidance

---

PHASE 5: CATALYST ANALYSIS

Potential Catalysts

Catalyst Assessment: WEAK

There is no near-term catalyst to unlock value. The stock is already fully valued by the market. The "catalyst" is patience - waiting for either:

1. Price to come down (valuation compression)
2. Earnings to grow into the valuation (time arbitrage)

Without catalyst, require 30%+ margin of safety = CHF 71,400 entry price

---

PHASE 6: MEGATREND RESILIENCE

Tier Assignment: T1 "Fortress" - Total ≥ +3, no score below 0

Megatrend Conclusion: Resilient to all major megatrends. "Affordable luxury" positioning protects during downturns (trade-down from expensive luxuries, trade-up from mass-market).

---

PHASE 7: VALUATION

Current Valuation Metrics

Valuation Trinity

1. Liquidation Value (Floor)

Not meaningful for brand-based business. Lindt's value is in its brand, not tangible assets.

2. DCF Valuation (Conservative)

Assumptions:

• 2024 Owner Earnings: ~CHF 550M (FCF adjusted)
• Growth Years 1-5: 6% (below guidance of 7-9%)
• Growth Years 6-10: 4%
• Terminal Growth: 2.5%
• Discount Rate: 8%

DCF Conclusion: Base case fair value ~CHF 102,000. Current price of CHF 117,000 offers no margin of safety.

3. Earnings Multiple Valuation

Multiple Conclusion: Market is pricing Lindt at the high end of its historical range. Fair value on normalized multiple (35x for quality) = CHF 102,000.

Margin of Safety Summary

MOS Conclusion: The stock is 15% overvalued on conservative assumptions. Need 30% MOS = CHF 71,400 entry price.

---

PHASE 8: DECISION SYNTHESIS

Psychology Check

Final Munger Tests

1. Can I explain to a 12-year-old? Yes. "Lindt makes fancy chocolate that people pay twice as much for because it's better and feels special."

2. What do I believe that market doesn't? Nothing. The market correctly values Lindt as a high-quality business. There's no variant perception here.

3. If wrong about one thing, what kills thesis? If valuation never normalizes (stock stays at 40-50x forever), I'll never get an entry. Opportunity cost.

4. If stock dropped 50%, would I buy more? YES, absolutely. At CHF 58,500, this would be a screaming buy. That's the difference between REJECTED and WAIT.

Expected Return Scenarios

At current price, expected returns are below hurdle rate. WAIT for better entry.

---

FINAL RECOMMENDATION

┌─────────────────────────────────────────────────────────────────┐
│                     INVESTMENT RECOMMENDATION                    │
├─────────────────────────────────────────────────────────────────┤
│ Company: Lindt & Sprüngli          Ticker: LISN.SW              │
│ Current Price: CHF 117,000         Date: December 2024          │
├─────────────────────────────────────────────────────────────────┤
│ VALUATION SUMMARY                                                │
│ ┌─────────────────────────┬─────────────┬─────────────────────┐ │
│ │ Method                  │ Value/Share │ vs Current Price    │ │
│ ├─────────────────────────┼─────────────┼─────────────────────┤ │
│ │ DCF (Conservative)      │ CHF 102,000 │ -13% (overvalued)   │ │
│ │ Multiple (35x normal)   │ CHF 102,000 │ -13% (overvalued)   │ │
│ │ Analyst Consensus       │ CHF 121,000 │ +3% MOS             │ │
│ │ BofA Target             │ CHF 144,000 │ +23% MOS            │ │
│ └─────────────────────────┴─────────────┴─────────────────────┘ │
│                                                                  │
│ INTRINSIC VALUE ESTIMATE: CHF 102,000 (conservative)            │
│ MARGIN OF SAFETY: -15% (OVERVALUED)                             │
├─────────────────────────────────────────────────────────────────┤
│ RECOMMENDATION:  [ ] BUY  [ ] HOLD  [ ] SELL  [X] WAIT          │
├─────────────────────────────────────────────────────────────────┤
│ QUALITY ASSESSMENT: EXCELLENT - Passes all Buffett tests       │
│ VALUATION ASSESSMENT: EXPENSIVE - No margin of safety          │
├─────────────────────────────────────────────────────────────────┤
│ TARGET ENTRY PRICES:                                             │
│ STRONG BUY:              CHF 71,400  (30% below IV)             │
│ ACCUMULATE:              CHF 81,600  (20% below IV)             │
│ FAIR VALUE:              CHF 102,000                            │
│ TAKE PROFITS:            CHF 122,400 (20% above IV)             │
│ SELL:                    CHF 153,000 (50% above IV)             │
├─────────────────────────────────────────────────────────────────┤
│ POSITION SIZE (at entry): 4-5% of portfolio (full position)    │
│ CATALYST: None required - quality justifies patience            │
│ PRIMARY RISK: Valuation never normalizes (opportunity cost)     │
│ SELL TRIGGER: Gross margin <55%, ROE <12%, brand scandal        │
└─────────────────────────────────────────────────────────────────┘

"Too Hard" Pile Assessment

TOO HARD PILE VERDICT: NO - This is a simple, high-quality business

Final Decision

WAIT

Business Quality: A+ Valuation: D (too expensive) Decision: WAIT for CHF 81,600 or better

---

Price Alerts to Set

---

What Would Change My Mind

To BUY now:

1. Major market correction (20%+ general decline) dragging Lindt down
2. Cocoa crisis intensifying beyond current expectations (temporary headwind)
3. Company-specific bad news that doesn't impair the moat

To REJECT:

1. ROE declining below 12% structurally
2. Gross margin compression below 55%
3. Material market share loss to competitors
4. Management change with poor capital allocation

---

Ensemble Validation Prompt

Analyze Lindt & Sprüngli (LISN.SW) using value investing principles:

Key Data:
- Price: CHF 117,000, Market Cap: CHF 28B
- Revenue: CHF 5.47B (+7.8% organic), EBIT margin: 16.2%
- ROE: 15.76%, ROIC: ~10%, D/E: 0.24x
- P/E: 47x TTM, 36x 2026E (historical avg: 39x)
- Premium chocolate market share: 40% global, 29% US
- Morningstar Wide Moat rating
- 29 consecutive dividend increases
- Cocoa prices: +177% in 2024 (crisis conditions)

Questions:
1. Does the ROE of 15.76% justify calling this a "quality" business?
2. Is P/E 47x justified for this level of quality and growth (7-9%)?
3. What entry price would provide adequate margin of safety?
4. Is the cocoa crisis a temporary headwind or structural risk?
5. How does GLP-1 drug adoption affect long-term chocolate demand?

Be rigorous. This is a great business - the question is whether it's a great investment at this price.

---

Sources

• Lindt Annual Report 2024
• 2024 Full-year results press release
• Morningstar LISN Quote
• Seeking Alpha: Premium Brand at Discount
• Confectionery News: Cocoa Crisis 2024-2025
• MarketScreener: Analyst Consensus
• Gourmet Economist: Swiss Chocolate Paradox

---

Analysis completed December 2024 Primary Analyst: Claude Opus 4.5 (Claude Code) Status: WAIT - Great business, wrong price