Vamed’s transformation takes its toll

The management focus was the transformation of Vamed as the business had not delivered on its targets. This was the result of poor governance and a number of other topics which all culminated in additional one-offs. The other businesses, especially Kabi, performed fairly well. However, the consensus was not beaten on every line (sales: -0.3%; adjusted EBIT: +5.1%), although the (adjusted!) profitability development looked promising, prompting the management to upgrade its profitability guidanc

Everything seems well on track, but Vamed needs some attention

Fresenius reported a difficult to read set of figures, implying that things are moving in the right direction. Having obtained shareholder approval for the deconsolidation of Fresenius Medical Care, the business will become a one-line item in future and the KPIs have been adjusted. Adjusted EBIT came in above the consensus expectations (+9.7%), but absolute EBIT took a hit from the transformation of Vamed, which will become somewhat expensive.

Less negative than feared

Fresenius’ reported adjusted figures beat the consensus at all levels. This does not make a perfect summer, but investors were quite happy. The cost cutting programme seems to be proceeding at full steam at Fresenius (different from FMC’s FME25 version), which immediately helped Kabi’s profitability after the trough in Q4 22. The Q1 figures were above our cautious estimates (sales: +1.6%; EBIT: +9.7%) confirming our strong view on the company. Nevertheless, we still see some road work ahead fo

Happy Catalyst Day!

Investors might have hoped for more, as the announcement of a change in the legal structure does not look too meaningful at first sight. In our view, this is a game-changer as the Fresenius-dominating shareholder has accepted to lose the FMC business sooner or later and Fresenius’ management could convince the Else Kroener-Fresenius Foundation that is has some clear plans how to generate value without this complicated structure and without FMC in the mid-term.

Plain Fresenius does not look that expensive

We have stripped out Fresenius’ dialysis division FMC, just to see the impact of the potential deconsolidation on FRE’s valuation. It is however clear that we do not have all information to do this properly and the exercise required a lot of guesswork as the deconsolidation effects could not be precisely calculated. On the other side we were the position generate a vague idee how a plain Fresenius would have looked like starting back in 2006.

Not a great start,…

… as some difficult decisions needed to be made. After only 30 days in the job, CEO, Mr Sen, has hit the reset bottom seeing that things are getting worse. Among the positives is his proactiveness and clear message. Much milk had been spilled and the entrance of activist investor, Elliot Investments, came at just the right time to encourage the CEO’s open-minded thinking without any sacred cows. The Q3 figures came in above the consensus expectations.

Is shareholder confidence returning?

In our Latest of 01/08/22 we argued that the Fresenius management should focus on re-gaining shareholder confidence. The management did not take the initiative but the Supervisory Board has kicked off this job and the new management should do the work. Replacing Mr Sturm is a very good solution in our view as we had frequently highlighted that the Fresenius management had been leaching on FMC for too long. The individuals involved will all have left the organisation by end September. New player

Dragged along for too long

We have frequently highlighted that Fresenius’ management has been leaching on FMC for too long as the former pulled ‘subsidiary’ FMC the parent company deeper into trouble. Fresenius should have been in the driving seat owing to the legal structure but it looks to us that it has been too cautious in reacting to FMC’s issues. There have been enough warning signals (e.g. FMC Q3 18 profit warning) in our view that not everything is going well.

Better growth in Helios margin under the Spanish sun

Fresenius’ figures were mixed with Helios reporting the strongest profitability increase, whereas admissions were still below pre-pandemic levels in Germany. Kabi reported the expected slowdown despite a strong performance in Infusion Therapy. FMC suffered from a long list of negative effects. All in all, profitability was burdened by cost inflation and other negative impacts at group level. Consensus was beaten at the top-line (+2.3%) and profitability by +3.5%.

A good move, but not game changer

Our conclusion is that there is more to come. Nevertheless, we like this move as it improves the divisions in areas where there are weaknesses: medtech and biosimilars. The latter might be somewhat surprising bearing in mind the company’s high ambitions. The management has indicated that this is the first step but we are missing the big picture. The company has announced a meet the management focussing on Kabi although note that there were many such events promised but not delivered in 2021.

Capital market’s disbelief

Basically, Fresenius has not done anything wrong. Management delivered its increased guidance, it reported progress in the cost-cutting programme and it gave a promising outlook. However, investors might have hoped for something larger, e.g. the divestment of the FMC stake or the separation of Kabi, but management remained true to itself. Figures were a clear beat to our estimates (sales: +5.9%; profitability: +9.8%) as we had booked some higher costs for the cost-cutting programme.

Postponed clarity until early 2022

Fresenius’ updated guidance generated a lot of confusion as the text deviated somewhat from the presentation and needed some careful reading. The most interesting piece of information was the mental separation of FMC from the group in the guidance. In today’s call, management tried to dispel the idea of separating FMC from Fresenius. Due to FMC’s quite weakish performance, Fresenius suffered at the profitability level but came in a notch better than expected. Consensus was not meet.

One has to live with each other

Once again, the close connection between Fresenius and its ‘subsidiary’ FMC can be easily detected. As a separation should not be expected any time soon, management might have to be reminded of its tasks as the US headquarters seems to live not only in a different time zone. Despite management’s confirmation, FMC’s contribution to cost savings will be welcomed, but not a necessary prerequisite. The leash looks to be too long in our view. Fresenius reported an expected set of figures, despite a

A non-event and that’s good

Despite being mixed, Fresenius’ Q1 report looks a bit uninspiring, which is not bad as the world creaks under the weight of the virus. But not very things is running perfectly. Kabi’s issues seem to have worsened, which legitimises the CEO change ex-post. Unfortunately, management was not too good at providing many details about the cost-cutting programme. Figures were a notch above our expectations and slightly above street expectations (top line: +1%; adjusted EBITDA: +2%).

On the quiet ....

As we had already speculated at a recent target price change (on 05/02/2021), the announced departure of Dr Krick, Fresenius’ dinosaur, could trigger some changes. The first ‘victim’ may be the head of Kabi and we clearly expect more to come. In essence, this could signal to the capital markets that there is something already set in motion. This might change sentiment towards Fresenius as we still see the share is clearly undervalued.

Warpaint London+ (W7L, House Stock at 375p) - Trading ahead of expectations - +10% upgrade implied

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