Pierre-Alain Ruffieux has had to endure tremendous ups and downs as Chief Executive Officer (CEO) at Lonza since he took office in November 2020. Initially, the manager successfully floated on the Corona wave. The production of the active ingredient for the vaccine by the US biotech company Moderna not only boosted sales and profits, but also catapulted the share price to an all-time high. With the end of the pandemic, however, the company's "highs" turned into "lows". Hand in hand, the operating business and the share price went into reverse. The share price is now even below the level of three years ago, when Ruffieux took the helm.
The surprising separation of Ruffieux at the beginning of this week caused another strong downward thrust in the share price. The press release mentions a "mutual agreement", but does not give exact reasons. That the departure may have been relatively spontaneous is shown by the wording that the search for a new CEO is yet to begin. Until then, Chairman of the Board of Directors Albert Baehny will steer the fortunes of the company, which is headquartered in Basel. A déjà vu, as the 71-year-old had already taken over on an interim basis in 2019/20, when there were also surprising changes of bosses. Ruffieux's departure is already the third in four years.
The continuing personnel carousel was preceded by a sales and profit warning in July. Sluggish demand in the dietary supplements market and lower-than-hoped growth in early-stage drug services and cell and gene therapy mean 2023 revenues are expected to grow by only a mid- to high-single-digit percentage in constant currency. Previously, Lonza had forecast high single-digit revenue growth. In addition, the full-year operating profit margin adjusted for special items is expected to reach a value between 28% and 29%, and not 30% to 31% as previously assumed. That's not all: even in the medium term, the company cannot keep its old promise of a margin range of 33% to 35%; the new target corridor is 31% to 33%.
The more cautious targets of the contract manufacturer for the pharmaceutical industry are accompanied by a weak first semester. From January to June, sales increased by only 3.2% to CHF 3.08 billion, whereas in the two previous years, double-digit percentage growth rates graced the balance sheet. Core EBITDA adjusted for impairment and restructuring costs actually declined by 6.6% to CHF 922 million. Consequently, the margin decreased by 3.1 percentage points to 30.0%. As the recently revised full-year guidance shows, the margin will shrink even further in the second half of the year.
The significant share price declines around the recent bad news show the disappointment of investors. Lonza interim CEO Baehny tries to reassure: "The last few months have undoubtedly been challenging, but our company is a global industry leader and has many opportunities for further growth in all business areas." The Group CEO now wants to ensure that Lonza is optimally positioned to take advantage of these opportunities. Baehny will present a fresh outlook as well as the medium-term strategy at the upcoming Investor Day on October 17. To date, the analyst guild expects sales growth to accelerate in 2024 and 2025, with margins then rising again (see chart).
While the Lonza Board of Directors is on the lookout for a new chief executive, the stock is looking for a bottom. Investors can create returns from this situation with a barrier reverse convertible. Leonteq is taking advantage of the current high volatility and issuing a softcallable BRC with top conditions. Thus, the new product leaves plenty of room for the SMI member on the downside. The barrier is fixed at 69% of the starting level. Consequently, the threshold is in a price range that the Lonza share last saw at the turn of the year 2018/2019. In addition, the BRC offers an attractive coupon of 8.00% p.a. with a maximum term of 15 months. The soft callable feature, which becomes active for the first time after 6 months, may lead to an early redemption.
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.