novo nordisk valuation
Post on 24-Apr-2015
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Danish multinational healthcare company (1923)
$33 B of market capitalization
November, 12th 2008
Profile2007 Diabetes
careBiopharmaceuticals
Revenues contribution
73% 27%
Revenues growth 9.4% 4.4%
Operating profit contribution
48% 52%
Operating margin 14% 41%
Leader in the global insulin market (Diabetes care) with 52% of world market share.
Leading positions in: insulin delivery systems, homeostasis management and hormone replacement therapies.
R&D expenses= 21% of revenues in 2007 (17% in average).
Focus on Diabetes care, haemostatic agents, hormone replacement, growth disorder, obesity and inflammation therapies.
2 new diabetes due on early 2009, more efficient than their competitors:
•more predicable results, •weight lost, •3 injections per week instead of one per day.
=> Good pipeline.
R&P Pipeline
StrategyFocus on patented modern insulin: barriers to
competition from generics Explore opportunities in pre-diabetes (obesity).
Partnerships with Universities and Biotechnologies companies.
Increase of investments in Biopharmaceutical companiesBuild presence on inflammatory diseases
Expand presence in North America, Brazil, China, India.
3
ManagementDanish Team promoted from Novo Nordisk since 2000: significant
increase in capital invested, sales and profitability => credibility.
Focus on sciences (R&D), finance and marketing.Expertise in the healthcare sector.
Alignment with shareholders : 25% of insiders ownership + stock options.
Board of directors: 11 skilled members, 4 of whom are executives.
CompetitorsMain direct competitors: Sanofi-Aventis then Eli Lilly and
Wyeth. Generic competition in Human insulin but move towards a
patent-protected modern insulin.High profitability and efficiency for Novo Nordisk.Better anti-diabetes drugs
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Product Growth
•World insulin market growth 6% in volume and 19% in USD. •Novo Nordisk’s market share: 52%.
In local currency, Biopharmaceuticals growth of 12% and Diabetes Care growth of 17% (share of growth 75%) .
Modern insulins growth 29% and 75% of share of Growth. Increasing market share , 45% in 2008.
Geographic Growth•USA: growth of 18%, 47% of share of growth and 56% of market share.
•International growth 21% and 29% share of growth.•Novo Nordisk’s market share: 59%.•China 50% growth driver in International operations, penetration rate: 5%.
=> Combination of fast growing market, market share increase and leading positions in promising markets: China, Brazil, India and modern insulins.
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Profitability
Gross profit margin= 77%
Increasing operating profit (30% Q3 08)
ROIC= 22%
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Good profitability & increase of operating profit margin and ROIC thanks to productivity gains.
Financial conditionDebt/ Assets ratio= 26%ICR= 34.86Debt maturing 48% in 2011 (USD) and 52% after
2016 (EUR) Undrawn committed credit of $1.5 bn
Current ratio= 2.28, Quick ratio 1.38Important amount of cash (9% of adjusted assets)Operating cash flow= $2.08 billion
Low financial risks, flexibility and options6.5
RisksSanofi Aventis.Rising cost of R&D and discontinuations of drugs’
development.Pricing competition from generics in human
insulins.Currency risks (but hedging).
Modest financial risk profile & Predicable cash flows
Low exposure to patent expirations. 0.26% of Default within 5 years (Merton model).S&P A, Moody’s A2.7
Historical TRS & Volatility
Cumulative log return
Volatility
8
Valuation (base case)
V= 3.74
Valuation (unlikely stress case)Decrease of ROIC from 23% to 21% during phase 2.Decrease of sales from 7% to 3% in phase 1, and from
13% to 10% in phase 2.Decrease of capital efficiency by 50 basis points.Phase 1= 2 years of recession instead of one.
Price= $51Undervalued by 2%.
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Recommandation
Buy shares to take advantage of the:leading positions in high growth segments,undervalued stock,high profitability,good financial condition.
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Last minute updateStock price: 47.13 => undervalued by 42% and 7%.Exchange rate USD/DKK: 5.96$400 M of investment in a new insulin production plant in China
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