Bayer stock: Lights up again

by Julia Groß, Euro am Sonntag

fAlmost four years after the takeover of the agricultural group Monsanto was completed, Bayer shares have overcome their downward trend. In contrast to the last two attempts to break out before and after the Corona crash, there are now really clear signs of an improvement in the fundamental situation of the Leverkusen group.

There is the agricultural business with what Jefferies analyst Charlie Bentley puts it, “the strongest data in about a decade”. The prices of important agricultural commodities such as wheat, corn and soya had already risen significantly before the Ukraine war. That means full coffers for the farmers and thus good conditions for increasing sales and the acceptance of higher prices for Bayer’s seeds and crop protection products. In the fourth quarter of 2021, the Crop Science division exceeded expectations by 15 percent with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of 761 million euros. In addition, the sale of the pesticides business to Cinven for 2.4 billion euros will reduce the high level of debt.

Even more important, because higher margins are achieved there, are the advances in the pharmaceutical division. Here, Bayer is heavily dependent on the blockbusters Eylea (against macular degeneration) and Xarelto (blood thinner), which together account for a good 40 percent of division sales. Both are at risk of patent expiry in 2024/25 and thus competition from cheaper imitation drugs. However, positive phase 2 data for the blood thinner Asundexian gives us reason to be confident that the gap can be closed. Asundexian is just one of several potential Xarelto successors in Bayer’s pipeline that have novel properties that could outperform competing products.

The second hope is the cancer drug Nubeqa. Investigations are being carried out here to expand the indication. Bayer was able to show that combination therapy with Nubeqa reduces the risk of death in patients with metastatic, hormone-sensitive prostate cancer by a third. This should give the drug significantly higher revenues. Management raised the peak sales forecast to over $3 billion.

There is potential for disappointment due to possible negative exchange rate effects. A weak ruble alone could reduce sales by around 300 million euros. Bayer also assumed stable geopolitical conditions in Eastern Europe when making the forecast. The group makes less than one percent of its sales in Ukraine. It also seems unpredictable at the moment how the wish of the major shareholder Temasek to depose Bayer CEO Werner Baumann will continue.

The excitement surrounding the glyphosate legal disputes has calmed down somewhat recently. Analysts are now expecting a constructive solution, and the worst-case scenario has already been priced in, according to Jefferies’ Charlie Bentley. The investment bank Barclays, which upgraded Bayer shares to “buy” at the beginning of April, still sees risks from the glyphosate lawsuits, but also the chance that Bayer can leave the issue behind in 2023.

Investor info

Bayer
Low rating

Bayer is benefiting from better business prospects and the rotation of investors into value stocks. For the current year, the group expects sales growth of around five percent. Ebitda margins are expected to increase in Crop Science and Pharma and remain stable in Consumer Health. Even taking into account the ongoing legal risks, the share is valued very favorably with a P/E for 2023 of less than ten.

Image sources: Gil C / Shutterstock, Taina Sohlman / Shutterstock.com