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!

Shield Therapeutics - Termination of coverage

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

Cambridge Nutritional Sciences - Operational efficiencies; adjusted EBITDA profi

Cambridge Nutritional Sciences (CNS) has provided a trading update for the 12 months to 31 March 2024, noting that a combination of strong sales growth and significant margin improvements, driven by operational efficiencies, have played key factors in the group’s expectation of being adjusted EBITDA positive in FY 2024. Revenues are expected to be £9.8m (30% YoY growth), ahead of our £9.0m forecast, with gross profits expected to exceed £6m, which is again ahead of our year-end forecast of £5.6m

Creo Medical Group - Speedboat savings validated

An official NHS Supply Chain case study has quantified the savings made by an NHS Trust from adopting Creo Medical’s Speedboat device to perform Speedboat Submucosal Dissection (SSD) in comparison to surgical alternatives. In total, the net cash saving from 130 SSD procedures for the NHS Trust was calculated at £687k, including savings from reduced length of hospital stay and reduced theatre costs. Notably, these savings did not include the patient and financial benefits associated with reduced

Morning Note – 24 April 2024

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

Hybridan Small Cap Feast - 24 April 24

24th April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

Hybridan Small Cap Feast - 22 April 2024

22nd April 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: What’s baking in the oven? ** Potential**** Initial Public Offerings: Reverse Takeovers: 16 April 2024: Electric Guitar (ELEG.L) Concurrent with its Admission to trading on AIM, Electric Guitar is proposing to acquire the entire issued share capital of 3radi

Cambridge Nutritional Sciences - H1 2024 interims: Executing a newly focussed st

Cambridge Nutritional Sciences (CNS) has published its H1 2024 results to end September 2023. Group revenues grew 44% to £4.9m and gross profits increased by 63% to £3.1m, with the company benefitting from newfound operational efficiencies. With its now streamlined strategy focussing on the core Health & Nutrition business and the initial signs of an encouraging uptick in sales momentum, we believe the company is well positioned for growth that will help create future value for shareholders. We

e-therapeutics - Termination of coverage

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

The Hardman & Co Monthly: April 2024

Feature article: Steady as she goes, but could be better: A review of investment company liquidity since 2016 Liquidity is the lifeblood of equity markets. The measurement of liquid asset availability to a market or company is a way of gauging a market’s health. This article builds on our previous work, which analysed the liquidity data for non-financial trading companies, by applying the same analytical techniques to the investment companies (IC) space. We analyse liquidity for ICs as a whol

Venture Life Group - Strong organic growth; focus on EBITDA

Venture Life has reported FY23 results to December 2023, following the February trading update. Revenues grew 17% in the year to £51.4m (our est. £50.7m) and adjusted EBITDA was £11.6m (our est. £11.6m). Cash conversion was 85%, generating £9.8m of cash from operations. Cash generation and no M&A in 2023 allowed the company to de-lever, closing FY23 with net debt to adjusted EBITDA at 1.3x. Management have focused on growth with three therapy areas generating double-digit revenue growth and onli

Warpaint London (W7L, House Stock, 196p) - Strong foundation, even stronger upgrade momentum

Morning Note – 8 April 2024

Shield Therapeutics - FY 2023 TU; total revenues in line but Accrufer scrip revi

Total reported revenues and other income were $17.5m (our forecast $16m) in 2023 vs $5.5m in 2022. The composition of that revenue was different to our expectations such that Accrufer US revenues of $11.6m compared with $3.6m in 2022 but came in below our estimate of $13.6m. In the release, the company has noted that the methodology used by the third-party data provider for US Accrufer scrips has resulted in an overstatement for 2023. Revised figures for 2023 have been given showing 77,000 total