Saturday, September 28, 2013

Analysis of Bayer



A German chemical & pharmaceutical company


Company: Bayer

Business: A German chemical company that are active in pharmaceutical industry, in the agricultar industry and high-performance materials. They are divided into four business units: Bayer Healthcare, Bayer CropScience, Bayer MaterialScience and Service Areas (which include Bayer Business Services, Bayer Technology Services and Currenta).

Active: All over the world to describe their global presence they have over 50,000 employees in Europe, 16,000 in South America & Africa, 15,000 in North America and 26,000 in Asia & Pacific.

P/E: 29.2

contrarian value of P/E, P/B, ROE as well as dividend
The P/E for Bayer is high with 29.2 and the P/B is far to high with 3.9 which means that Graham says no to this one. Their earnings to sales is only 6% which indicates to me that the pharmaceutical part is not as profitable as one would have hoped. The ROE is up at 13.2% which could and should ideally be better. The book to debt is running at 0.6 which is so, so. in the last five years they have grown 3.9% which is well above inflation in Germany so pretty ok and the motivated P/E becomes 13 to 16 which means that the shares are highly overvalued on the market today! They spend 123% of their earnings on research which can be interpreted two ways: They have fallen behind their competitors and need to catch up or the second approach is that they are securing their future stream of revenue with this high investment. They pay a dividend of 2.2% which is too little for me and this represents 64% of their earnings so too much trouble for a year or two and they would be forced to decrease the dividend.

Conclusion: There is no reason to step into Bayer today or in the foreseeing future because the company is simply far too overvalued and carry too much debt in my eyes. The dividend is also dangerous because it represents a big part of their earnings and is still only 2.2%. So stay away from this one.
 
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