Metabolic Peptide Demand And New Capacity Will Support Stronger Long Term Earnings Potential

Catalysts

About PolyPeptide Group

PolyPeptide Group is a contract development and manufacturing partner focused on therapeutic peptides, serving pharmaceutical and biotechnology customers across development and commercial stages.

What are the underlying business or industry changes driving this perspective?

• The global peptide therapeutics market is forecasted to grow at a compound annual growth rate above 15% between 2024 and 2030, largely driven by metabolics. This positions PolyPeptide in a segment where rising volumes could support higher revenue and greater operating leverage over time.
• PolyPeptide is involved in over one third of all peptide drugs currently in Phase III and was engaged in more than half of FDA approved peptide drugs since 2021. This can support a broad flow of launches and, if converted into supply contracts, provide recurring commercial revenue and more stable earnings.
• The rapid shift in metabolics toward more complex synthetic peptide structures, combined with customer concerns around China and a greater focus on Western-based suppliers, can support higher outsourcing to PolyPeptide. This may feed into both top line growth and improved net margins as volumes increase.
• Capacity expansions in Braine, Strasbourg and Malmö, including modular SPPS lines that management expects to come online by 2027, are aimed at supporting a €100 million contract and broader demand. At higher utilization, this can spread fixed costs across more output and support EBITDA margin progression.
• The shift in revenue mix toward metabolics and commercial contracts, which already account for more than half and around 65% of revenue respectively, is tied to long term contracts and recurring volumes. This can support more predictable cash flow, higher EBITDA margins and potentially stronger earnings resilience.
• Customer prepayments of €27.7 million, an expanded €151 million revolving credit facility and a confirmed 2028 midterm outlook together suggest that funded capacity growth can proceed without overreliance on short term cash generation. This may allow PolyPeptide to capture additional revenue opportunities while working to improve margins.

Assumptions

This narrative explores a more optimistic perspective on PolyPeptide Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming PolyPeptide Group's revenue will grow by 21.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -9.4% today to 11.8% in 3 years time.
• The bullish analysts expect earnings to reach €77.4 million (and earnings per share of €1.92) by about January 2029, up from €-34.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €53.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.1x on those 2029 earnings, up from -28.7x today. This future PE is lower than the current PE for the CH Life Sciences industry at 31.5x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.83%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The business is becoming heavily exposed to metabolics, with this segment already accounting for more than half of revenue and growing faster than other areas. Any long term slowdown in new metabolic drug launches, pricing pressure on GLP type therapies or failure of late stage programs could leave PolyPeptide with underutilized peptide capacity and softer revenue and earnings.
• The company is committing to large, multi year capacity expansions in Braine, Strasbourg and Malmö, with around €100 million of 2025 CapEx and a target utilization only reached toward 2026. If demand is weaker than expected or ramps more slowly, fixed costs could weigh on EBITDA margins and delay progress toward higher profitability.
• A growing share of sales comes from commercial contracts that use more raw material, and management already highlights a mix effect from higher raw material intensity. Sustained input cost inflation or less favorable contract terms could cap gross margin progression and limit improvements in net margins and earnings.
• The business model depends on customer prepayments of €27.7 million and an expanded €151 million revolving credit facility, with €60 million already drawn. A long term reduction in customer willingness to pre fund capacity or tighter credit markets could restrict funding for growth projects and put pressure on free cash flow and balance sheet strength.
• Guidance and the midterm outlook assume that capacity additions and portfolio shifts will move EBITDA margins toward about 25% by 2028. Any persistent operational issues, delays in ERP and digital projects or slower backfilling of older sites as production migrates to new assets could keep utilization below plan and leave EBITDA margins and earnings below these ambitions.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for PolyPeptide Group is CHF43.88, which represents up to two standard deviations above the consensus price target of CHF34.36. This valuation is based on what can be assumed as the expectations of PolyPeptide Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF43.88, and the most bearish reporting a price target of just CHF28.73.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €659.0 million, earnings will come to €77.4 million, and it would be trading on a PE ratio of 23.1x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of CHF28.15, the analyst price target of CHF43.88 is 35.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.