Metabolics Shift And New Capacity Will Support Long Term Peptide CDMO Opportunity

Catalysts

About PolyPeptide Group

PolyPeptide Group is a contract development and manufacturing partner focused on therapeutic peptides across development and commercial scales.

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

• Exposure to a peptide therapeutics market that is forecast to grow at above 15% CAGR to 2030, with PolyPeptide already involved in over one third of global Phase III peptide programs, can support volume growth in its CDMO pipeline and commercial revenue over time.
• The rapid shift of the portfolio toward metabolics, where revenues have tripled since 2021 and now account for more than half of group sales, positions the company in an area management describes as the main growth engine for peptides. This can influence future revenue scale and earnings.
• Industry preference for more complex synthetic peptide structures and customer concerns around China are pushing work toward Western CDMOs. Management reports active relationships with all key metabolic players, which can sustain order flow and support gross margin resilience.
• The ramp up of new large scale SPPS capacity in Braine, plus planned additions in Strasbourg and Malmö, is tied to customer backed contracts, including a €100 million agreement. This can increase utilization, support operating leverage and affect EBITDA margins as these assets mature.
• Customer prepayments of €27.7 million in H1 2025, an expanded €151 million revolving credit facility and a focus on long term commercial contracts indicate visibility on future demand and funding for capacity. This can influence revenue stability, free cash flow and net profit over the medium term.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming PolyPeptide Group's revenue will grow by 16.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.4% today to 8.7% in 3 years time.
• Analysts expect earnings to reach €50.7 million (and earnings per share of €1.44) by about January 2029, up from €-34.7 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 29.2x on those 2029 earnings, up from -30.5x today. This future PE is lower than the current PE for the CH Life Sciences industry at 33.5x.
• 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 4.82%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The business is increasing exposure to metabolics and large commercial contracts. Any slowdown in end market growth, pricing pressure on GLP type therapies, or a weaker than expected shift from recombinant to synthetic peptides could limit order volumes and reduce revenue and EBITDA margins.
• Capacity additions in Braine, Strasbourg and Malmö are being built ahead of, or alongside, long term contracts. If customer demand or program timing does not fully align with this expansion, utilization could fall short of targets and leave the company with higher depreciation and fixed costs relative to revenue and earnings.
• The model relies heavily on Western customers prioritizing Western CDMOs over Chinese or other competitors. Any easing of geopolitical concerns, aggressive pricing by peers, or successful capacity additions by other peptide manufacturers could dilute PolyPeptide's share of new programs and weigh on revenue growth and net profit.
• Customer prepayments of €27.7 million, use of a €151 million revolving credit facility and a CapEx plan lifted to €100 million for 2025 increase reliance on continued strong cash generation. If program delays or weaker order intake coincide with this higher investment, free cash flow and balance sheet flexibility could come under pressure.
• The 2028 midterm targets assume an ongoing portfolio transition to higher margin commercial metabolics and successful execution of operational initiatives such as the new ERP system. Setbacks in project execution, implementation cost overruns or slower portfolio mix improvement could mean EBITDA margins and earnings do not move towards the targeted levels.

Valuation

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

• The analysts have a consensus price target of CHF36.14 for PolyPeptide Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF43.85, and the most bearish reporting a price target of just CHF28.65.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €586.0 million, earnings will come to €50.7 million, and it would be trading on a PE ratio of 29.2x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of CHF29.8, the analyst price target of CHF36.14 is 17.5% 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.