(BFM Bourse) – The pharmaceutical group plunged on the Paris Stock Exchange after publishing results lower than expectations in the third quarter. But above all, the company has delivered a strategic plan which foresees stability of its profit in 2024 and throws the margin objective for 2025 in the trash.
The plunges have continued on the CAC 40 in recent weeks. If Worldline (-59% on Tuesday) and Alstom (-38% at the start of the month) were among the smallest stocks in the index, the same would not be said of Sanofi, which is quite simply the fifth French company in terms of market capitalization.
The group delivered its third quarter results this Friday, but as Stifel puts it very well “Sanofi published much more than a quarterly report this morning and made several announcements that go in opposite directions”.
The group’s results are lower than expected, but, in addition, Sanofi has unveiled a strategic plan which indicates a stable profit for next year, while analysts expected much better. And the group has also abandoned its margin target for 2025.
As a result, the stock plunged 18.93% at Friday’s close on the Paris Stock Exchange, obviously accusing the biggest drop in the CAC 40. According to AFP, the company recorded its worst session in “decades “.
Let’s quickly move on to the third quarter accounts. The turnover increased by 3.2% excluding currency effects to 11.964 billion euros while the net profit per share (EPS) of the activities, the main indicator of profitability of the group, fell by 2.1% to 2.55 euros. But analysts expected revenues of 12.097 billion euros and an EPS from activities of 2.61 euros.
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Vaccines not dynamic in the third quarter
Sales of “Dupixent (Sanofi’s flagship drug in strong growth, editor’s note) exceeded forecasts and the new drugs were mixed: Beyfortus (a drug which protects infants against respiratory diseases) exceeded expectations, but the Altuviio (hemophilia A bleeding control) fell short of estimates. Vaccines (due to lower flu vaccine sales) and Consumer Health (mainly due to exchange rates) also fell short of estimates. was slightly below expectations”, explains Stifel.
But above all the market reacts to the announcement of the group’s strategic review. Sanofi presented this Friday a plan called “Play to Win”. “This strategy remains focused on its essential objectives: the launch of innovative drugs and vaccines, agile and efficient deployment of resources and improvement of R&D productivity,” explains the group. As a result, Sanofi will increase its investments in R&D to stimulate its growth and “improve its shareholder value”.
Except that these investments must be financed and that they will weigh on the profitability of the company. Thus, the pharmaceutical group will tighten costs, with a savings plan which will reach up to 2 billion euros between the end of 2024 and the end of 2025. These savings will be reallocated to “financing innovation and growth engines “.
Due to the increase in its R&D investments, Sanofi anticipates net income per share from activities “roughly stable” in 2024 compared to 2023, excluding changes in the tax rate. And by including less advantageous taxation – Sanofi expects an overall tax rate of 21% in 2024 compared to 19% in 2023 – EPS will even show a decline “in the low single digit range”, that is- i.e. between 1% and 4%.
Margin objective in 2025 abandoned
In any case, it’s a cold shower for the market. “Until then the consensus was for an increase of 6% for next year,” notes Oddo BHF.
“This figure is much lower than expected since we and the consensus expected a rebound from weak growth in 2023 due to Aubagio (multiple sclerosis treatment), at a mid to high single digit rate. difference could reach 10% on the EPS of 2024 activities, depending on exchange rate assumptions,” underlines Stifel.
Morgan Stanley, for its part, calculates a gap of 9% compared to the EPS consensus for next year.
Second negative announcement: Sanofi explicitly declared that it would no longer target an operating margin for its activities of 32% in 2025, even if it will remain attentive to its long-term profitability.
“This is another disappointment, because there was great confidence in Sanofi’s ability to achieve this objective and exceed it,” asserts Stifel.
The only somewhat positive announcement for the market: the group’s decision to separate from its Consumer Health activity (products for allergies, colds, coughs, diarrhea, constipation, etc.). This will involve the IPO of this entity, an operation which will take place no later than the fourth quarter of 2024.
“Sanofi is studying possible separation scenarios, but believes that the route most likely to be taken would be that of an operation on the capital markets through the creation of a listed company whose headquarters would be in Paris,” explains the group.
“We are extremely surprised by the timing of its announcements (…) In terms of valuation, the company is being paid with a discount of 6% compared to its peers but this should not protect the title this morning”, judges Oddo BHF for whom this plan “does not come at the right time”.
The independent research firm AlphaValue puts things into perspective. Sanofi is “a victim of (unjustified) market panic,” he judges. The “short-term pain” comes from the focus on R&D which, together with the 2024-2025 cost reduction program, should bode well for Sanofi’s organic growth and margins in the longer term. Overall, investors should remain vigilant, as the value lost today should soon be recovered,” warns AlphaValue.
Julien Marion – ©2023 BFM Bourse
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