DAR Details

Darling Ingredients Inc. (NYSE: DAR) is engaged in developing and producing natural ingredients from edible and inedible bio-nutrients. It makes variety of ingredients and customized specialty solutions for clients present across the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer industries.

Q2FY21 Result Performance – For the Second Quarter Ended 3 July 2021

• The company has reported an increase in net sales to $1.2 billion from $848.7 million in the pcp driven by a significant rise in revenue from the Feed Ingredients and Fuel Ingredients segments that grew by 53.3% and 66.1% YoY to $771.93 million and $109.71 million, respectively. In addition, revenue from the Food Ingredients segment rose by 13.7% YoY to $317.03 million.
• It has generated a combined adjusted EBITDA of $353.7 million in Q2FY21 compared to $195.21 million in Q2FY20 with the global Ingredients business logged a record EBITDA of $221.7 million in Q2FY21.
• The net income attributable to the company rose to $196.6 million from a net income of $65.4 million in Q2FY20.

Key Data (Source: Company Reports)

Recent Updates

• As per the updated global Environmental, Social, and Governance (ESG) report released by the company on 1 September 2021, DAR is aiming to lower its water and energy intensity by 5% from 2020 to 2025. Driven by its sustained strides towards increasing the production of renewable energy, it aims to attain rise in production of more than 150% in 2022 from 2019.
• On September 14, 2021, the company updated that the resumption of Diamond Green Diesel (DGD) in Norco, Louisiana is in progress with the operations are likely to commence in the next few days. While the complete operational at the DGD's 400-million-gallon renewable diesel expansion project is expected in Q4FY21.

Risks

The company is exposed to the fluctuation in the prices of multiple products associated with commodities markets. In addition, the business is reliant on the sourcing and procurement of raw materials at a favourable price to the company. Its business is susceptible to several laws, rules, and regulations. Besides, the shift in consumer preference also remains a potential risk.

Outlook:

The company has further increased the combined adjusted EBITDA guidance to around $1.275 billion for FY21 driven by the benefit of robust H1FY21 financial performance along with the expectation of sustained strength of commodity pricing for its global ingredients business in H2FY21 and expected operationalisation of the DGD Norco, LA 400-million-gallon renewable diesel project in Q4FY21. Further, the company has stated that the DGD Port Arthur, TX 470-million-gallon renewable diesel project is anticipated to be finished in H1FY23.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

Over the last six months, the stock was up by ~+2.05% while, over the last nine months, the stock was up by ~+41.26%. The stock is trading above the average price of the 52-week low-high range of $31.45-$79.53, respectively.

We have applied EV/EBITDA multiple based relative valuation (on an illustrative basis) and the target price reflects a fall of low double-digit (in % terms). We have applied a slight discount to peer average EV/EBITDA multiple (NTM basis) considering its lower current ratio of 1.48x in Q2FY21 compared to Industry Median at 2.00x and reduced quick ratio at 0.86x in Q2FY21 versus Industry Median at 1.00x.

Considering, the aforementioned factors along with its current trading levels and the associated business risks it is prudent for investors to book profits. We give a “Sell” rating on the stock at the current market price of $75.62 per share, as on 10:12am Washington DC, USA Time 28^th September 2021.

Technical Chart

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.