Due to the increasing risk aversion on the capital markets, biotech shares have not fared well recently. The Nasdaq Biotechnology Index, the world's most renowned sector barometer, fell by around a quarter over a twelve-month period. The performance of Bachem, the company's home market, was even weaker. The technology company, which is active in the field of biochemistry and offers products and services for the pharmaceutical and biotechnology industries, lost almost two thirds, or around CHF 8.6 billion, of its market value during this period.
However, the last major downward push was weeks ago. Since July, the SMIM member has been consolidating between CHF 70 and 50, and the current anxious sentiment on the market about a global recession has ensured that the share price is currently moving rather on the lower side of the corridor. On the other hand, the share has digested the last operational failures well. On August 25, the specialist in the production of peptides, which are used, for example, to treat cancer, diabetes or obesity, presented a weaker-than-expected half-year report.
The balance sheet at a glance: In terms of sales, the company, which was founded in 1971, was not quite able to maintain the previous year's level. In the first six months, revenues fell by 1.8% to CHF 234.9 million. This was due to weakness in the core segment "Commercial Active Ingredients", which recorded a decline of 11.7%. CEO Thomas Meier attributes the decline to lower order volumes in the commercial product portfolio, partly due to delayed market launches of customer products. By contrast, the smaller business units "Clinical Active Ingredients" (16.2%) and "Research Chemicals and Specialties" (8.9%) posted significant gains.
The lack of growth on the revenue side was not without impact on profits. Earnings before interest and taxes dipped by almost 17% to CHF 51.6 million, while the corresponding margin fell by 3.9 percentage points to 22.0%. According to CEO Meier, this was due to the many costly development projects. Even though Bachem failed to meet market forecasts at all levels, there was nevertheless some relief on the market following the presentation of the financial statements, and the share price even rose. Due to the previously very negative news from industry representative Polypeptide, concerns about Bachem had been secretly high.
The outlook for the current semester exudes confidence. "The order situation for the second half of the year is very positive," CEO Meier said at the presentation of the figures, adding: "We expect to significantly improve sales and earnings for the full year 2022 compared to the first half." Specifically, full-year 2022 revenues are expected to increase by a mid- to high-single-digit percentage, and the Ebit margin is expected to remain stable compared to the previous year. Bachem also confirmed its medium-term targets due to a sustained strong demand trend for peptides and oligonucleotides. These envisage sales of CHF 1 billion by 2026 and an Ebitda margin of more than 30%. By way of comparison, in 2021 the company generated revenues of CHF 503 million and an operating return on sales of 31.2%. Two new orders for peptides with a volume of CHF 25 million in 2023 and CHF 150 million in 2024 show that the company is on the right track. Bachem is also negotiating further orders with the unnamed customer for subsequent years. However, the relatively new oligonucleotide active ingredients are also expected to contribute to the growth. These are molecules that are used to treat genetic diseases. Bachem only entered the market about three years ago, but this area is already expected to generate sales of CHF 100 million in the coming year.
After two years of rapid growth, analysts expect net profit to stagnate in the current year. In 2023 and 2024, earnings per share are then expected to rise again by just under one fifth in each case. The forecast rate of increase is thus roughly on a par with the price/earnings ratio for 2024 of 23.5. As a result, the consensus currently rates Bachem shares as "hold". However, the average price target of CHF 69 is still well above the current quotation and thus at the upper end of the movement range of the stock outlined at the beginning.
In order to generate a remarkable yield of 12.00% p.a. with the new Softcallable Barrier Reverse Convertible on Bachem, the share does not have to make such big jumps. On the contrary, the mid cap may even decline moderately without the promised maximum gain in 15 months coming under pressure. The risk buffer amounts to 40%. From the current perspective, this means that the underlying price may fall to just below the level of the Corona crash in 2020. The issuer has the right to terminate the barrier reverse convertible prematurely after six months at the earliest.
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