Bayer

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Re: Bayer

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Interessant artikel voor LONG aandeelhouders Bayer vanop SeekingAlpha.

Bayer: I Finally Pulled The Trigger
Oct. 5, 2020 10:48 PM ET|52 comments | About: Bayer Aktiengesellschaft (BAYRY), BAYZF
Daniel Schönberger
Daniel Schönberger
Value, long-term horizon, Dividend Investing, Long Only
(6,195 followers)

Summary
High debt levels, a damaged reputation, a potential ban of glyphosate and high settlement payments are putting Bayer in a tough position.

Bayer is also feeling pressure from COVID-19, but the business remains recession-proof and has a wide economic moat.

At the current share price all the negativity is more than priced in and make it a bet, that is risky but potentially very rewarding.

I bought at around €47.

Last Wednesday, Bayer AG (OTCPK:BAYZF) issued a press release, which is indicating that the company will face further troubles in the quarters ahead and as a reaction, the stock dropped more than 10% on Thursday. In the last few weeks, when Bayer was trading at around €55, I was close to buying the stock, but hesitated for several reasons (especially as I was expecting lower stock prices). Last Thursday, I finally pulled the trigger and bought the stock at around €47. And time will tell, if it was a good decision to buy Bayer at this point. I definitely see several risks for Bayer, but the risk-reward ratio is worth a shot in my opinion.



(Source: Bayer Media)

Usually a lot of research is preceding the final buying decision of a stock and typically the last and final step when I am already confident, that a company is a good investment and I already have a price for which I like to buy the stock is to test my bullish hypothesis. I am basically trying to take the opposite view (in this case the bearish view) and try to find arguments why a company (in this case Bayer) is a horrible investment. Charlie Munger also mentioned this type of exercise in the past as it is quite common among lawyers trying to argue for both sides. In this article, I therefore will try to argue why Bayer is a bad investment, but of course I will also try to disprove the bearish arguments.

Monsanto Acquisition Was A Mistake
Many people argue, that the Monsanto acquisition was a huge mistake. It is not only claimed, that Bayer overpaid for Monsanto, many also assume it will go down in history as one of the worst acquisitions ever. Bayer paid $66 billion for Monsanto (about €56 billion at current exchange rates), which is more than Bayer’s current market capitalization of €45 billion and the acquisition created several problems for Bayer – like high debt levels or lawsuits that still lead to high levels of uncertainty and will cost Bayer a lot of money. In this section, we will look at the problems that are all related to the Monsanto acquisition and we start with the high debt levels.

High Debt Levels

When looking at the half-year results, Bayer had €3,148 million in cash and cash equivalents on June 30, 2020 on its balance sheet, but non-current financial liabilities (long-term debt) of €33,947 million and current financial liabilities (short-term debt) of €7,372 million. This is resulting in total debt of €41,319 million and compared to the equity attributable to Bayer AG stockholder (which was €35,704 million) we get a D/E ratio of 1.16. This ratio is not great, but still seems to be acceptable.

Problematic for Bayer are not only the high debt levels, but also the high amounts of goodwill, that result from the Monsanto acquisition. Currently, Bayer has €38,466 million in goodwill on its balance sheet. Additionally, we can also find €33,722 million in “other intangible assets”, which does not necessarily have to be a bad sign as Bayer certainly has intangible assets like patents, but the amount is quite high.

There are two important “items” the balance sheet doesn’t reflect yet. First of all, Bayer issued about €6 billion in new bonds at the beginning of July. In August 2020, the Bayer-Elanco deal was finally closed and Bayer received about $5.3 billion in cash for its animal health division, which was sold to Elanco Animal Health (ELAN). These €10 billion in additional cash will be used for the settlement in the glyphosate trials in the United States (we will get to that) and the cash won’t therefore stay on the balance sheet for long.



(Source: Bayer Debt Investor Information)

When looking at the company’s bond and loan maturity profile it probably will be tough in the next few years, but it should be manageable. When looking at the last five years, Bayer generated an average EBIT of €5.1 billion annually and the average free cash flow was €4,740 million. But in 2021 and 2024, Bayer has to repay more than €5 billion in outstanding debt, which will definitely be a challenge. When looking at the past 15 years, Bayer often had higher debt levels and a higher leverage and always managed to deleverage, which should make us confident.



(Source: Bayer Debt Investor Information)

The high debt levels are definitely a challenge and this is one of the few arguments, which is hard to dismiss. But Bayer is a recession-proof business and although it is also affected a bit by COVID-19 and the recession (we will get to that), we should be confident, that Bayer will manage to generate enough cash to repay the debt. But Bayer can’t make any major missteps – or otherwise the company will be in serious trouble.

Reputation

A second point that is really hard to dismiss is the damage to Bayer’s reputation, which can have serious consequences in the years to come – for example when trying to attract talent. It is a bit difficult to measure reputation with the numbers I have, but when reading articles and trying to understand how people feel about Bayer, the statements made about Bayer are different from five years ago. A negative reputation can also have consequences for Bayer’s revenue. The brand name is very important for Bayer – and part of its wide economic moat – and when the brand name and reputation will suffer, people might stop buying Bayer products. But when looking at sales in the last few years and quarters we can dismiss this argument.

We can look for example at Aspirin Cardio. Despite decades with generic competition, Bayer is still generating strong and stable sales from Aspirin. In 2019, revenue was €579 million – more or less the same as one or two decades earlier. In the first half of 2020, Aspirin sales could increase even 8.3% (FX adjusted). This is a hint, that people still trust Bayer und buy the products – despite the existence of cheaper generic products. Or when looking at the pharmaceutical segment, sales could increase from €13,512 million in 2014 to €17,962 million in 2019, which is resulting in an annual growth rate of 5.86%. In 2019, growth was driven by volume (+6%), which is a good sign, that more people were buying products from Bayer. We also have to mention, that sales in the second quarter declined – but in my opinion due to COVID1-19 (we will get to that) and not because of Bayer’s reputation.

And despite lawsuits and immense negative press for Bayer and Monsanto, the sales for the crop sciences segment are also improving. For the full year 2019, crop sciences could increase its sales by 39% (mostly due to acquisitions) but the FX and portfolio adjusted growth was still 1.4% and herbicides grew 1.8% (once again FX and portfolio adjusted). In the first half of 2020, crop science could increase sales still by 3.6% despite the challenging environment and sales for herbicides also increased 4.1% (FX adjusted).

In the years to come, the global glyphosate market is estimated to grow with a CAGR of 6.8% until 2024 and will reach about €12.5 billion. According to this study, the highest growth rates are expected in the Asia-Pacific market and North America while the growth in South America is expected to be lower in the next five years. But when looking at the estimates for the years to come as well as past numbers it does not seem like people will stop using herbicides.

Political Pressures

In my opinion, we can show from past sales numbers that people don’t stop using glyphosate and herbicides – despite the negative press the topic received in the last few years. But if consumers won’t stop using the product, governments can still modify the terms of usage of the product or might even ban the product entirely. And many countries are discussing the issue and moving in that direction. In some countries the individual use of glyphosate is already banned (like in Belgium) and other countries (like Germany) want to ban the usage in private gardens in 2020. Germany also wants to ban glyphosate entirely until 2023 or 2024 (a good overview can be found here).

At least in Germany, the discussion about banning glyphosate is ongoing for years and despite the discussion it is still allowed in Germany. Hence, I would not be too sure that it will really be banned in a few years from now. But in case of Bayer (and as investor) we have to think about the possibility of a glyphosate ban and that Bayer might lose a bigger part of the €5 billion in annual revenue the product is generating right now. During the investor conference call on September 30, 2020, Werner Baumann pointed out, that free cash flow will increasingly be invested in external research and development and in licensing to further strengthen the pharmaceuticals pipeline. It is important the Bayer stays innovative to introduce new products to compensate the loss of glyphosate sales – if it should happen.

Lawsuits

A few months ago, it seemed like Bayer could finally bring the glyphosate trials to an end and reach a settlement and the company still seems very close, but so far it is still unknown if a settlement will be reached and how much Bayer has to pay. We can expect a settlement and payments being probably between €10 billion and €12 billion. But in August judge Vince Chhabria threatened to restart the litigation. Bayer also wants to settle possible future litigations to end the topic once and for all, but judge Chhabria raised concerns about this part of the settlement. The deadline for a settlement seems to be November 2, 2020 right now and management of Bayer still seems confident, that a settlement will be reached.

Assuming a settlement will be reached, Bayer will have to pay a high fine, but it will be manageable for the company. When looking at past examples of companies, that had to pay similar high fines – Volkswagen (OTCPK:VWAGY), the big Tobacco companies, British Petroleum (BP) or the major banks – we have to point out, that these companies did pretty well after the settlement and are in most cases still highly profitable. And if the companies were less profitable, the reasons were others than the fines and the settlement.

Additional Problems Due To COVID-19
Aside from the above-mentioned problems, that result from the Monsanto acquisition and are know for quite some time, the situation got actually worse a few days ago. In a press release Bayer also announced, that the negative impacts from COVID-19 and the recession are more severe than previously expected:

For 2021, growth and cash flow generation are expected to be lower than planned and can only be partially compensated by further savings measures. The company now expects 2021 sales to come in at around the 2020 levels, with 2021 core earnings per share slightly below 2020 levels, based on constant exchange rates.

While the news certainly wasn’t great and led to a sharp double-digit sell-off, we have to put the news in context. For long term investors, it should not be dramatic, if Bayer is struggling a bit for one or two years and the business can still be described as extremely recession-proof and core earnings per share might still be higher than in 2019. The current headwinds, which are still mild compared to many other companies, are a result from COVID-19. The pharmaceutical sales for example, which decreased 9.7% in the second quarter, are negatively affected by delayed operations in hospitals. But these problems are temporarily and might affect Bayer in 2020 and 2021, but not over the long run.

Bayer also introduced an additional savings program and is expecting to save more than €1.5 billion annually as of 2024 on top of annual earnings contributions of €2.6 billion (which were announced in November 2018). Sales and earnings per share might stagnated in 2020 and 2021, but over the long run we should remain confident about Bayer’s growth potential.

Dividend
Until very recently, investors could also be rather confident, that Bayer will keep the dividend at least stable. But after the above-mentioned press release, we have to expect a much lower dividend in 2021 and probably also in 2022:

The Board of Management intends to leave Bayer's dividend policy, which delivers 30 to 40 percent of core earnings per share to stockholders each year, in place. Payouts in the coming years are expected at the lower end of this corridor rather than at the upper end in previous years.

Right now, Bayer is expecting core earnings per share to be between €6.40 and €6.60 (might be a little higher – depending on exchange rates) and when we assume a payout ratio of only 30% the dividend next year will probably be €2.00, which is currently resulting in a dividend yield of 4.4%. As this is still a solid dividend yield, I don’t think dividend investors should be deterred due to the lower dividend and the information about the dividend cut is already priced in after the press release.

Technical Picture
Another risk is the technical picture and the chart of Bayer. From a technical point of view, Bayer is still in a downtrend with lower highs and lower lows. Right now, it seems like the stock is forming a double bottom, but that by itself is always possible in a downtrend when the stock price comes close to the previous low.



(Source: Traderfox)

Although we are clearly in a downtrend, the stock seems to be well supported. Not only is the stock oversold at this point and could form a double bottom with the lows of March 2020. We also have two trendlines supporting the stock price at this point – the green dotted trendline and the orange dotted trendline in the chart. This is making a turnaround and potential bottom for Bayer quite realistic.

Since its highs of €144, Bayer already declined 70%, which seems pretty steep, but that by itself is no reason for a turnaround and it is also possible, that Bayer will decline further. The next potential support levels would be the lows set during the financial crisis between €32 and €35. Aside from looking at the chart, we also have to point out, that Bayer is trading for very low multiples. Assuming a core EPS of around €6.50, the P/E ratio would be between 7 and 8, which is extremely cheap for a high-quality, recession proof business with a wide economic moat.

Conclusion
Bayer is certainly facing several problems at this point and the next few years will be tough. But with a share price of $45, these facts are more than priced in. I didn’t buy a full position yet and will continue to add if the stock price should drop lower. While a further decline of Bayer’s stock price is not impossible, the risk-reward ratio seems to be favorable at this point and with a time horizon of at least 10 years, Bayer should be a great investment at this point.
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Re: Bayer

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* Bayer AG : Barclays cuts target price to EUR 50 from EUR 75
* Bayer AG : Barclays cuts to equal weight from overweight
Nog eens bijgekocht aan 45.2€ :D
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Re: Bayer

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Gisteren ook terug een positietje ingenomen in Bayer aan 43.70 €, of dit echt het ideale koop moment was zal te tijd uitwijzen. De huidige koers prijst heel veel negatief in en houdt, mijn inziens, geen rekening met de lange termijnperspectieven. De farma- en agrodivisies van het bedrijf zullen in normale omstandigheden weer voluit zijn schaalvoordeel kunnen uitspelen. Al blijft een definitieve oplossing in de glyfosaat affaire voorlopig nog de rem op de koers.
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Re: Bayer

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goudhaantje schreef:
16 okt 2020 11:38
Gisteren ook terug een positietje ingenomen in Bayer aan 43.70 €, of dit echt het ideale koop moment was zal te tijd uitwijzen. De huidige koers prijst heel veel negatief in en houdt, mijn inziens, geen rekening met de lange termijnperspectieven. De farma- en agrodivisies van het bedrijf zullen in normale omstandigheden weer voluit hun schaalvoordeel kunnen uitspelen. Al blijft een definitieve oplossing in de glyfosaat affaire voorlopig nog de rem op de koers.
First Pacific, Goldfields, Zijin mining , Ur-energy , Boskalis , Savencia , Yara International , Carlsberg Korea Electric Power, Uranium Participation Corp, Vranken, Hummingbird Resources, EVS,Etex , ThermoFisher,NVent,Pentair,Brederode,Pan American silver, Far Eastern Consortium,Tessenderlo, Bayer

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Re: Bayer

Bericht door Chukky2 »

Blijft ook maar dalen .......

Veel aandelen in Europa 50 procent en meer gezakt
avantium Bam Bayer-Bioc.Bpost-cresent-econocom -Exmar -Fagron-greenyard-ing-MDxH-Nyrstar -Ontex -Oxurion-Pharming-umic.XFab-Arcelor ,IAsiat-argenx melex -Solvay,AMG,beka.acaci.shel.

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Re: Bayer

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Chukky2 schreef:
21 okt 2020 18:45
Blijft ook maar dalen .......

Veel aandelen in Europa 50 procent en meer gezakt
Nu ook een proces verloren met een ander product. Het blijft maar duren.
Vandaag nog eens bijgekocht. Gemiddelde van 56€ momenteel, en op Googl na mijn grootste positie.
Bayer en Alphabet zijn mijn Long aandelen (+10y), en blijf geloven op lange termijn een winst te zullen genereren.
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Re: Bayer

Bericht door NewB76 »

Enig idee hoeveel er geshort wordt op Bayer ?

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Pidb
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Re: Bayer

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And its gone! schreef:
22 okt 2020 09:55
Chukky2 schreef:
21 okt 2020 18:45
Blijft ook maar dalen .......

Veel aandelen in Europa 50 procent en meer gezakt
Nu ook een proces verloren met een ander product. Het blijft maar duren.
Vandaag nog eens bijgekocht. Gemiddelde van 56€ momenteel, en op Googl na mijn grootste positie.
Bayer en Alphabet zijn mijn Long aandelen (+10y), en blijf geloven op lange termijn een winst te zullen genereren.
in the long zie ik het ook wel goed komen, daar hun producten toch breed & 'essentieel' zijn. Alleen nu wat zoeken waar ligt de bodum. maar je zal nu maar gekocht hebben boven de 100 :§

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Alverman
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Re: Bayer

Bericht door Alverman »

In the long run komt het wel goed met Bayer, maar ik ga toch proberen te kopen rond 35-37 euro zoals ik eerder al zei. Ik heb geen haast...
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Re: Bayer

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MEDIA-Bayer's request for roundup appeal rejected by California court- WSJ
19:59 (22/10) - Bron: Reuters
-- Source link: https://on.wsj.com/31xgZQY
-- Note: Reuters has not verified this story and does not
vouch for its accuracy

((Bengaluru newsroom, globalnewsmonitoring@thomsonreuters.com))
Alvast een aankooporder geplaatst aan 38,5€ :lol:
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