Developing countries' growing taste for chocolate, and a switch among smaller labels to outsourcing, will help Barry Callebaut to grow confectionery volumes at more than three times the market average, UBS has said.

Annual growth in chocolate consumption in countries such as Brazil, China and Russia will grow by 5% over the next five years, lifted by growing wealth which will give confectionery a greater place in local diets, UBS analyst Joern Iffert.

Currently, Chinese consumers eat on average 100g of chocolate per year, compared with more than 5kg in American, 10kg in the UK and 12kg per year in Switzerland.

Barry Callebaut's "good competitive position" in eastern Europe, where it has two production sites, and Asia, where it has four, will enable it to exploit this growth and outperform more sluggish Western markets.

Share rating 

The group, the world's biggest chocolate maker, would also benefit from the trend for manufacturers to outsource their production to Barry Callebaut, and avoid the need to "invest heavily in new capacity for volume growth or modernisation".

While the company is known to manufacture for names such as Hershey and Nestle, its contract wins often remain below the radar because producers are reluctant to publicise deals.

Barry Callebaut looked set to grow overall volumes by 7.2% a year between 2009 and 2012, compared with a market likely to expand annually by, at best, 2%.

And, with its shares trading on a lower multiple of earnings than rival Lindt & Sprungli, they offered an "attractive entry point", Mr Iffert said in a report, lifting his rating on the stock to "buy" from "neutral", with a price target of SFr740.

The stock closed on Monday 1.5% higher at SFr675.00.

Better butter 

The report added that weak prices of cocoa butter were likely to show some recovery, after falling to current levels of 1.6 times the price of the cocoa beans from which the product, used in white and milk chocolate, is processed.

"Lower market inventory and accelerating demand for chocolate products should result in increasing butter prices in the medium term, benefiting Barry's [profits] from end-2010/early 2011."

While the ratio also fell to current levels in 2002, it has historically average 2-2.5 times the cocoa bean price, and neared 3.5 times early in 2008.

AAK, the Swedish manufacturer of vegetable oil-based substitutes for cocoa products, also highlighted the slide in cocoa butter prices when announcing a drop in divisional revenues last week.