Author Topic: BAYRY - Bayer AG  (Read 4172 times)

BPCAP

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BAYRY - Bayer AG
« on: December 08, 2016, 02:34:56 PM »
David Einhorn's recent presentation seems to make sense regarding Bayer AG.  The multiple doesn't seem to do the company justice given where peers trade and its high-quality products.  I don't know if the Monsanto deal makes sense, but it seems to reason that a no-go by regulators would be a short term catalyst. 

Background: Bayer does pharma, seeds and agricultural chemicals, OTC drugs, and vet. care.  Bayer trades at 11.5x earnings.  European pharmas trade at 14x, and competitors like PFE, MRK, ZTS, BMY, and MON trade closer to 20x.  No big patent cliff issues presently. 

http://www.businessinsider.com/david-einhorn-robin-hood-bayer-and-monsanto-presentations-2016-12/#this-is-appealing-to-anyone-who-recognizes-that-food-production-is-increasingly-reliant-on-gmos-but-not-everyone-is-on-board-36

Macro seems all wrong for the current environment (hence the cheapness?)  European based, lots of exposure outside the U.S. and U.S. dollar (which everyone wants), conglomerate-like, debt and pension obligations.  Perhaps these account for the lower multiple, or perhaps there is more I haven't seen yet. 

Any negative "ah-ha!" insight would be appreciated. 



John Hjorth

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Re: BAYRY - Bayer AG
« Reply #1 on: December 08, 2016, 03:25:36 PM »
BCPAP,

Thank you for starting this topic in the investment forum. I have this company on my European "search list", I just need to do some work on it, to get some kind of understanding of  the business on overall level.

The difference in P/E level to comparables is screaming to the sky.

Thank you for reminding me.
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bennycx

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Re: BAYRY - Bayer AG
« Reply #2 on: December 08, 2016, 06:20:11 PM »
Like Bayer as a stand alone, but the acquisition of Monsanto seems very expensive. If the deal does go through, I don't think the stock (combined entity) is cheap..

BPCAP

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Re: BAYRY - Bayer AG
« Reply #3 on: December 09, 2016, 07:21:13 AM »
This is one of those rarer cases where the best capital allocation strategy could be massive share repurchases, rather than M&A. 

At least they're buying MON during a period of cyclical weakness and not during peak earnings.  And the combination does shrink the seed oligopoly a bit, meaning better pricing power on the next upward swing. 

That said, the odds of a marriage seem less than 50%.  MON's $105 price to the $128 deal price signals as much.  Buy MON if you think the deal will go through.  It'll take over a year to close, but $23 on a $105 investment isn't bad in such a time frame. 


bennycx

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Re: BAYRY - Bayer AG
« Reply #4 on: December 12, 2016, 01:27:58 AM »
hi BPCAP,

Am I missing something about Einhorn's valuation? It seems to be 17x P/E trailing 12 months but Einhorn says 11x 2017. Where does he get 11x from?

Thanks.

Malitar

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Re: BAYRY - Bayer AG
« Reply #5 on: December 12, 2016, 07:00:29 AM »
11x is based on 2017E consensus EPS

frank87

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Re: BAYRY - Bayer AG
« Reply #6 on: December 12, 2016, 09:14:28 AM »
11x is based on 2017E consensus EPS

Ah, the good old consensus forward adjusted EPS that's about 30-40% greater than reported. Be wary of this especially with pharma companies because sell-side tends to add back very relevant and significant drug amortization costs.

UNF2007

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Re: BAYRY - Bayer AG
« Reply #7 on: December 02, 2018, 07:51:58 PM »
Anyone look at this recently?  A few recent articles in the WSJ peaked my interest. Big overhang of the lawsuits for round-up.... But maybe that is overblown? A prelim look at the evidence linking it to cancer is weak at best, they may be able to successfully defend, or at least get the payouts way down.

Spekulatius

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Re: BAYRY - Bayer AG
« Reply #8 on: December 03, 2018, 04:23:32 AM »
Anyone look at this recently?  A few recent articles in the WSJ peaked my interest. Big overhang of the lawsuits for round-up.... But maybe that is overblown? A prelim look at the evidence linking it to cancer is weak at best, they may be able to successfully defend, or at least get the payouts way down.

Besides the issue with the lawsuits, the core issue is that they vastly overpaid for Monsanto, IMO. I like BASFY, the German peer. Much more solid, cheap valuation and a nice dividend. BASFY purchased some AG assets that Bayer had to sale to satisfy regulators for a fair price.

FWIW, BASFY is not a perfect peer, sine Bayer more into high value add products.
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peterHK

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Re: BAYRY - Bayer AG
« Reply #9 on: December 06, 2018, 09:40:18 AM »
Anyone look at this recently?  A few recent articles in the WSJ peaked my interest. Big overhang of the lawsuits for round-up.... But maybe that is overblown? A prelim look at the evidence linking it to cancer is weak at best, they may be able to successfully defend, or at least get the payouts way down.

Besides the issue with the lawsuits, the core issue is that they vastly overpaid for Monsanto, IMO. I like BASFY, the German peer. Much more solid, cheap valuation and a nice dividend. BASFY purchased some AG assets that Bayer had to sale to satisfy regulators for a fair price.

FWIW, BASFY is not a perfect peer, sine Bayer more into high value add products.

On what basis did they overpay for Monsanto? It's trading on trough numbers so of course it looks like that now, but at higher crop prices there is a lot of operating leverage in that business. One drought is all it takes (remember 2010/2011).

I think it's cheap, the problem really is:

1) The legal overhang: broadly science is showing more and more that environmental contaminants do hurt health epigenetically, so this isn't a problem that is likely to go away on the crop science side of the business. Further, pesticides/fundicides/herbicides are becoming less effective (dicamba is sort of a low-key disaster).

2) They're leveraged, so impairment to EV due to, for example, litigation, affects shareholders even more. A $5bn legal liability is a lot worse for shareholders when there's $36bn of debt ahead of you.

3) Germans don't buy back stock, and they can't really anyway because of the leverage.