High Demand For GLP-1 Drug Storage Will Spur Future Expansion

Key Takeaways

• Strong focus on higher-value solutions and expansion projects are key to boosting revenue, margins, and production capacity.
  
• Strategic partnerships and demand for drug containment solutions drive revenue growth, with recovery in core markets supporting earnings and cash flow.
  
• SCHOTT Pharma's dependency on high-value solutions and adverse currency movements risks financial strain, amid capital expenditure and reduced polymer syringe demand challenges.

Catalysts

Develops, manufactures, and sells drug containment solutions and delivery systems for injectable drugs for pharmaceutical, biotechnology, and life science industries worldwide.

• The shift to higher-value solutions (HVS), which delivers significantly higher margins (10 percentage points higher), is a key focus for SCHOTT Pharma. This strategy aims to increase revenue share from HVS, projecting compound annual growth at 12%, which should boost overall revenue and margin levels.
  
• Ongoing expansion projects, such as new production facilities in Hungary and Serbia, are expected to increase production capacity and generate more sales in the second half of the fiscal year. This is anticipated to drive top-line growth and improve EBITDA margins through increased efficiencies and economies of scale.
  
• High demand trends in the Drug Containment Solutions segment, particularly for sterile cartridges vital for storing sensitive biologics like GLP-1 drugs, are expected to contribute to strong demand and revenue growth. The shift toward home care and personalized cancer treatments is likely to increase earnings.
  
• Strategic partnerships and robust customer relationships with top pharmaceutical companies provide a stable revenue base, allowing SCHOTT Pharma to innovate and cater to specific market needs effectively, potentially enhancing net margins by accommodating higher pricing strategies.
  
• The expected recovery in core vial markets in North America and EMEA, coupled with increasing order intake, should contribute to revenue stabilization and a return to normalized levels of demand, supporting improved net earnings and cash flow in the upcoming quarters.

SCHOTT Pharma KGaA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SCHOTT Pharma KGaA's revenue will grow by 10.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.1% today to 17.3% in 3 years time.
• Analysts expect earnings to reach €223.5 million (and earnings per share of €1.5) by about April 2028, up from €134.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €190.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, down from 26.8x today. This future PE is lower than the current PE for the DE Life Sciences industry at 26.5x.
• Analysts expect the number of shares outstanding to grow by 0.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.25%, as per the Simply Wall St company report.

SCHOTT Pharma KGaA Future Earnings Per Share Growth

Risks

• SCHOTT Pharma faces potential risks from adverse currency movements, particularly related to the U.S. dollar and Argentine peso, which have already impacted EBITDA negatively. This could continue to affect earnings if not managed properly.
  
• The company plans significant capital expenditures (€160-190 million) to support growth, but this could strain cash flow and financial flexibility, especially if revenue growth does not meet expectations.
  
• Despite positive indicators, SCHOTT Pharma's revenue growth remains reliant on high-value solutions (HVS), making the company vulnerable to market fluctuations or changes in demand for these products, impacting revenue and margins.
  
• The reduction in demand for polymer syringes due to lower mRNA-related activities presents a challenge that may take 2-3 years to offset, potentially depressing revenues and earnings in the interim.
  
• The company's EBITDA margins face pressure from the ongoing ramp-up and scale-up costs, which may impact profitability if not controlled in line with the anticipated sales growth in the second half of the fiscal year.

Valuation

• The analysts have a consensus price target of €28.361 for SCHOTT Pharma KGaA 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 €37.0, and the most bearish reporting a price target of just €20.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €223.5 million, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 5.2%.
• Given the current share price of €23.85, the analyst price target of €28.36 is 15.9% 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.