It could have been so beautiful: At the beginning of June, Bayer stock tested the 200-day line from above and then shimmied along it for weeks. Even though the price dipped below it from time to time, the stock always managed to quickly climb back above the moving average. During the consolidation in the EUR 51 area, the chances were even good that the DAX share would use the indicator as a springboard to the upside. Especially as the 200-day line was also beginning to tilt northwards again. However, things turned out quite differently.
The shares of the German pharmaceutical and agrochemical group plummeted. The reason: Bayer disappointed market participants with a surprisingly significant drop in profits in the second quarter. Earnings before interest, taxes, depreciation and amortization (Ebitda) before special items shrank by a little more than a tenth to EUR 2.6 billion from April to June, while analysts' consensus was almost 8% higher. It gets worse. The bottom line was a loss of EUR 2.3 billion. In addition to higher costs and negative currency effects, another billion euro provision for the ongoing wave of lawsuits in the dispute over the weed killer glyphosate had a particularly negative impact on the result.
Within the group, there was a contrasting trend. While the agricultural business Cropscience is responsible for the downward trend in the balance sheet, the Pharmaceuticals division performed well. Dietary supplements enjoyed high demand, as did prescription drugs such as the recently launched cancer drug Nubeqa and the anticoagulant Xarelto. "We have achieved great success in the development and launch of medicines, some of which have blockbuster potential," said CEO Werner Baumann, commenting on the company's performance in the second quarter. The 58-year-old has high hopes, for example, for a kidney drug recently approved in the United States and a new Parkinson's cell therapy that has just entered the clinical testing phase.
In the pharmaceuticals sector, Bayer is now also stepping up the pace of growth with another acquisition. The target is the US biotech company Vividion Therapeutics, for which the Germans are offering USD 1.5 billion. On top of that, there could be a performance-based milestone payment of up to USD 500m. Vividion has a platform with which different therapies with small-molecule active ingredients can be developed for different medical needs.
The pill division has given Baumann, who has been at the helm of the company for five years, the confidence to perform better than expected in the year as a whole. The CEO raised the 2021 sales forecast from the original EUR 42 to 43 billion to EUR 44 billion. The Leverkusen-based company also wants to go one better in terms of profit. Instead of adjusted earnings per share of EUR 5.60 to EUR 5.80, a target of EUR 6.00 to EUR 6.20 is now on the agenda.
The good news was initially overshadowed by the earnings disappointment on the stock market. But in the meantime, calm has returned to the Bayer share price and investors seem to be taking a closer look at the growth opportunities again. The blue-chip is consolidating in the EUR 46/47 area, touching down on an old horizontal support from the end of 2020. The majority of analysts also remain on the bullish side. The average rating calculated by Thomsen Reuters is 2.18, which corresponds to a buy ranking. The score has not changed for two months. Conversely, there have been no serious downgrades.
The recent slide in Bayer's share price caused volatility to soar, making it a good starting point for barrier reverse convertibles. Leonteq has structured two new soft-callable BRCs that offer an attractive investment solution in terms of yield and risk buffer. The CHF-denominated product has a coupon of 7.00% p.a., while the EUR version even offers 7.4% p.a.. The underlying does not have to show any advances in order to reap the returns. It is sufficient if the barrier fixed at 69% of the initial level remains intact over the next 18 months. Bayer has not been at this level for more than 10 years.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.
