JEAN PIERRE VERSTER: Have a sniff at these chemical companies

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Forget the brands — it’s the little-known companies that make the chemicals that make the smells, that you may want to have a sniff at

The global market for flavours and fragrances is dominated by four firms that control more than two-thirds of the supply of chemical compounds that stimulate our olfactory and gustatory senses.

Two important insights emerge: attractive operating returns can be diluted by overpaying for acquisitions, and an oligopoly can be negated by an oligopsony, as is the case here — where the key customers of these firms, being the giant multinational FMCG companies, keep price increases for flavours and fragrances in check. Rather pass than indulge in the high valuations on offer here.

 

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