Unwrapping quality: The investment case for Lindt 

In times of heightened market volatility, such as what we have experienced recently in the wake of the uncertainty surrounding Liberation Day, quality businesses tend to demonstrate greater resilience. They typically decline less in turbulent markets and recover quicker when stability returns.

Lindt, the globally recognised premium chocolate brand, stands out as a business that consistently embodies the hallmarks of quality including strong brand equity, pricing power and deliberate capital allocation.

To delve deeper into this, Natalie Harrison, Head of Distribution at Curate Investments asked Cristina Dyer, one of the portfolio managers of the Curate Global Quality Equity Fund, to unpack the investment case for Lindt and explore what makes it a compelling long-term holding in a quality-focused portfolio.

Lindt is an exceptional business built on doing one thing extremely well: crafting premium chocolate offering a moment of everyday luxury, says Dyer. Its core product assortment is instantly recognisable: Round Lindor truffles, exquisite chocolate bars and the Easter Gold Bunny. Every year, Lindt sells more than 150 million Gold Bunnies globally. To put that in perspective, if you lined them up nose to tail, they would stretch from Lindt’s headquarters in Switzerland to Cape Town in South Africa.

Lindt has long stood out to Evenlode Investment Management, Curate’s handpicked manager for the Curate Global Quality Equity Fund, for its consistent performance and high-quality fundamentals. However, the rich valuation prevented the investment manager from holding the stock in the portfolio. That changed in April 2024, when a sharp dislocation in Lindt’s share price, driven by an unprecedented surge in the price of cocoa created a compelling entry point. Evenlode initiated a position at that time and continued to build it throughout the second half of the year.

Before committing capital, it was important to understand whether the surge in cocoa prices could materially affect Lindt’s long-term business success. Although Evenlode expects cocoa prices to continue moderating, they are likely to settle at a higher baseline in the medium term until there is a structural improvement in supply.

For chocolate makers this creates a tough backdrop, putting their ability to raise prices without losing customers to the test. Historically, chocolate demand has been relatively inelastic to price. What’s more, Lindt’s own track record is even stronger than the market – a roughly 10% price increase has typically resulted in only about a 3% volume decline, still yielding around 7% growth. The price increases implemented by the company in 2023 and 2024 have seen even less volume erosion than the historical average. Periods of rising input costs often favour companies with superior quality.

This dynamic puts Lindt in a strong position to continue what it has done consistently for the past 15 years, which is grow organic sales at a high single-digit rate and expand margins by 20 to 40 basis points each year. While the company could expand margins more aggressively, it chooses to reinvest part of its earnings to grow future market share. This is a core tenet of Evenlode’s investment philosophy – looking for businesses willing to forgo some short-term profits to reinvest in opportunities that generate strong long-term returns. For example, Lindt’s decision not to cut marketing spend during the pandemic (unlike many peers), helped the brand stay top-of-mind with consumers and likely contributed to its subsequent strong organic growth.

Premium chocolate consumption also tends to rise with income. As the global middle class grow, consumers trade up from sugary snacks and sweets. Per capita chocolate consumption in China, for instance, is still a fraction of what it is in the UK or US. Developing markets account for 30% of global chocolate consumption but just 10% of Lindt’s revenues. That’s a significant runway for long-term growth.

Evenlode’s investment philosophy is not to chase what’s cheap but to invest in durable quality. Lindt perfectly exemplifies this. With global brand strength, resilient pricing power, disciplined reinvestment and significant whitespace for growth, it remains one of the highest-quality companies in the manager’s portfolio. Evenlode continues to have strong conviction in its ability to deliver consistent, sustainable growth for many years to come.

To learn more about the Curate Global Quality Equity Fund, visit curate.co.za 

Disclaimer 

Curate Investments (Pty) Ltd an authorised FSP No. 53549. The Curate investment funds are co-named portfolios administered by Momentum Collective Investments (RF) (Pty) Ltd. Please refer to the minimum disclosure documents (MDDs).