Cocoa price drop earns chocolatiers a bullish call

Barclays Plc analysts have turned positive on two of Switzerland’s leading chocolatiers, predicting the industry will benefit from a further slide in elevated cocoa prices.

In separate notes, Barclays upgraded both Barry Callebaut AG and Lindt & Spruengli AG to overweight, switching to what it described as “a more constructive view on chocolate players.” Shares of both companies rose in Zurich, the former gaining as much as 8%.

The confectionery industry worldwide has come under immense pressure in the past year amid surging prices for cocoa, a key raw material. Cocoa futures are more than double year-ago levels having soared to record highs in April, but have since retreated about 34% as better weather in West Africa stoked hopes for improved harvests.

That’s also lifted shares in Lindt and Barry Callebaut, the latter from a seven-year low.

Barclays analyst Alex Sloane said “unprecedented inflation” in cocoa bean prices had kept him cautious on Barry Callebaut over the past year.

“While these remain still well above historical levels, there has been a material easing from the peak earlier this year,” he said.

As for Lindt, Barclays describes it as a rare growth stock within the European consumer staples industry. Analyst Warren Ackerman expects the firm to double its long-term global market share, noting it consistently beat earnings guidance even when cocoa inflation was running at record highs. The cocoa slide would further ease cost pressures, aiding margins, he said.