Another Monsanto impairment

Bayer ‘surprised’ with another impairment on Monsanto’s intangible assets – mainly goodwill – increasing the total purchase price to €73bn, +62% above the initial level. Meanwhile the management has shared some insights on the officially unthinkable (i.e. separation of a single division, breakup of all three divisions). In an immediate intermediate move, the management has started to implement a change in the operational system. The Q3 figures were below consensus (sales: -0.9%; adjusted EBI

Some more clouds in the sky

After Bayer’s pre-released Q2 figures, there was a chance that the report would only provide more transparency. The greater details allowed a more granular view of two Seed & Traits businesses in Crop Science while the blockbuster anticoagulant Xarelto is facing the hot breath of generic competition to a much higher extent. Furthermore the company ‘optimized’ the presentation of its legal risks having dropped the glyphosate-related section without any explanation. The latest-available consen

Pharmaceuticals ahead of a new era?

The tone of Bayer Pharmaceuticals’ management was very optimistic when it talked about its late-stage pipeline at the R&D event. A peak sales potential of c.€12bn was not new, however, the company reported very good first results of a clinical trial in Parkinson’s disease (cell therapy – BlueRock), which also give some hope for the early-stage pipeline.

A hard landing

Bayer was abruptly evicted from the agro Shangri La and the pharma business was a mixed and more costly bag. This led to some differences with the consensus (sales: -1.4%; adjusted EBITDA: -3.5%). These things happen, but they never help change muted sentiment into a positive. Managing expectations might have been a good idea.

Some irony in the 2022 figures

Bayer reported a strong set of FY 2022 figures beating AV forecasts but missing consensus on net profit (-8.2%); the outlook given indicated weaker profitability in 2023. This does not come out of the blue in our view. Glyphosate prices and therefore the related products are expected to make a lower contribution to profitability. The pharmaceuticals’ performance was held back by the expected weak performance from Xarelto.

Investors appear to feel a bit queasy

Bayer’s Q3 figures were not a huge miss to consensus. They were mixed, but in an expectable pattern and should not be a big issue. On the contrary, there were some smaller positive aspects although investors were clearly disappointed as the share price is down -9% since last Friday’s close, bringing the twelve-month-performance down to a poor 2%. In our view the management is yet to reassure investors on the outlook for the coming months; perhaps the Q&A session will do the trick.

Unsatisfactory!

We had hoped that the never-ending Monsanto provision-and-extra-expenses-story would end without additional costs. Nothing doing! Another Monsanto-related provision and some additional impairments took a chunk out of the real-world P&L. Bayer moderately beat consensus (sales: +4.4%; adjusted EBITDA: +2.2%), but the party ended at the one-offs (reported: €-698m; consensus: -€247m).

Strong start to the year

Bayer started the agro season strongly as well as the flu season, whereas Pharma’s dynamics stalled slightly due to the Chinese tender business. Nevertheless, the beat to consensus was too meaningful (revenues: +6.0%; adjusted EBITDA: +13.1%; net profit: +38.7%) to be ignored by management. We wonder why it did not release preliminary figures like other companies would have done with such a deviation.

Flexing muscles in 2021

Bayer had a better ending than expected at the beginning of 2021. Crop Science especially was better off, benefiting from the greater glyphosate shortage and the strong position in corn and soybeans. Pharma was once again driven by its drag horses, but management warned of some tougher times in 2022. Consumer Health continued to perform well. Bayer reported a strong beat to the consensus FY net income line (+75.4%); we had been too cautious at many levels.

An unexpected surprise …

… after all the disappointment Bayer has caused in recent quarters. Consensus was beaten by +7.3% at the top line and by +7.5% on an adjusted EBITDA level. This came after Crop Science’s strong pick-up in the Americas allowing the division to make a positive contribution. Pharmaceuticals and Consumer Health reported a mixed set of figures, but were acceptable. The lifted guidance supported our positive view, despite a small miss to our estimates.

Bayer’s next rung?

Bayer looks a bit shy about announcing the first success in the glyphosate-related battles. Or realistic? We do not know why the company has not made more out of it. From our point of view, the recent case is too different to be seen as a trend reversal. Only a positive outcome of the Supreme Court’s final decision could wipe all unsettled as well as future cases from the table.

Always good for a surprise

Bayer’s timing was perfect to make more than one announcement to deflect one’s full attention. Using a busy day is another option. Basically, Bayer’s adjusted operating figures were not that bad. Crop Science reported some volatility in its margin, whereas the other divisions did quite well despite some miss of our estimates, especially on the profitability level. Consensus was beaten at the top-line (+6.9%), whereas the adjusted EBITDA was missed by -7.1%. Likewise, ours was also beaten.

Could be valued as a coup de liberation…

… but we see the count-down on Mr Baumann remaining tenure at closer to ‘… three’ rather to ‘ten … nine …’. Bayer’s management has tried to ‘sell’ the rejection of the settlement mechanism for future glyphosate-related cases by Judge Chhabria as opening up new opportunities but basically the issues and risks are unchanged. While the Supreme Court ruling might be of some help on future liability risks, it is unlikely to prevent a pickup in the stream of new plaintiffs.

Nice beat, but this is not relevant

The planned hearing for the preliminary approval on 19 May 2021 (rescheduled from 12 May 2021) could mark the turn of the tide as the mechanism for the settlement of future glyphosate-related plaintiffs is not yet agreed. The judge has an additional 30 days to render his option. Bayer reported a good start into the year, beating the street by +4% (top line) and +9% at the profitability level. However, the group’s operating performance made us not too enthusiastic.

Still another moderate year ahead

Bayer really needs a kind of breakthrough or a brilliant idea to change the sentiment on the name. We understand glyphosate-related issues and the related payments continue to weigh on CF, but the 2021 guidance seems to be quite reachable, especially in Crop Science. Nevertheless, our 2020 estimates were missed as we had factored in some additional provisions in Crop Science and did not envisage any potential reversals of impairments in other divisions. Consensus was met.

Warpaint London+ (W7L, House Stock at 470p) - Outstanding FY23A - Upgrades!

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Edison Investment Research is terminating coverage on ABC Arbitrage (ABCA), paragon (PGN), Foresight Solar Fund (FSFL), Kendrion (KENDR), Lithium Power International (LPI), Triple Point Energy Transition (TENT), 4iG (4IG), e-therapeutics (ETX), Pharnext (ALPHA) and Shield Therapeutics (STX). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our web

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Cambridge Nutritional Sciences - Operational efficiencies; adjusted EBITDA profi

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Creo Medical Group - Speedboat savings validated

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Morning Note – 24 April 2024

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Hybridan Small Cap Feast - 24 April 24

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

Hybridan Small Cap Feast - 25 April 2024

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Hybridan Small Cap Feast - 22 April 2024

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Edison Investment Research is terminating coverage on ABC Arbitrage (ABCA), paragon (PGN), Foresight Solar Fund (FSFL), Kendrion (KENDR), Lithium Power International (LPI), Triple Point Energy Transition (TENT), 4iG (4IG), e-therapeutics (ETX), Pharnext (ALPHA) and Shield Therapeutics (STX). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our web

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