Saturday, April 16, 2016

Analysis of Bayer 2016

Bayer, a German life science company

Company: Bayer 

ISIN DE000BAY0017 | WKN BAY001

Business: A German life science company. They stand on four pillars at the moment with additional investments. The pillars are: Pharmaceuticals, Consumer Health, Crop Science and Animal Health. The additional investments are 60% in Currenta and 69% in Covestro.

Active: Present world wide with heaviest focus in Europe and North America.

P/E: 21.1

Here you can find the previous analysis of Bayer 2015.

contrarian values of P/E, P/B, ROE as well as dividend for Bayer

The P/E is far too high for my liking with 21.1 and so is the P/B with 3.4 which then ends up giving us a no go from Graham. The earnings to sales are for a life science company looking low with only 9% but the ROE is pretty ok with 16%. The book to debt ratio is so, so with 0.5.
In the last five years they have shown an excellent yearly revenue growth rate of 4.9% which then gives us a motivated P/E of 15 to 18 which still means that Bayer is slightly overvalued by the market today.
They spend a big chunk of money on R&D since they pay out 104% of their earnings but what you do not have in skill you must try to compensate in numbers.
They pay a small dividend in the size of 2.4% which still correspond to 50% of their earnings so they better keep pushing up those earnings!

Conclusion: Graham says no to Bayer and so do I. The P/E and P/B are too high, the ROE is ok but then the dividends are also too low which in the end means that I see no interest in stepping into Bayer today and probably also not tomorrow.

If this analysis is outdated then you can request a new one.


Anonymous said...

would be interesting post Monsanto offer. The CEO seems to be a wildcard but assuming that the offer is not successful, price is much more affordable.

Fredrik von Oberhausen said...

Everything that is share price based will be the same %-age lower. Unfortunately I have not yet updated the DAX companies in the google spreadsheet otherwise the values would have been available there without being forced to make the %-age calculation.

If the offer works out then Bayer is burnt. I have not often heard such idiotic statement as in connection with this deal that the "bad" reputation of Monsanto will be washed away... No, it will not... that bad reputation will be connected to the name Bayer.

I try to avoid companies with bosses that are on a crusade for building an empire only to satisfy their own ego.