Integration With Bormioli Pharma Will Unlock Synergies In High-Value Plastic Solutions

Key Takeaways

• Acquisition of Bormioli Pharma and focus on high-value products and biologics are expected to enhance revenue and margins significantly.
  
• Strategic investments and synergy-driven expansions position Gerresheimer for robust future earnings growth.
  
• High debt and integration challenges from acquisitions like Bormioli Pharma pose financial and managerial risks, potentially impacting margins and delaying revenue targets.

Catalysts

Manufactures and sells medicine packaging, drug delivery devices, and solutions in Germany and internationally.

• The successful acquisition of Bormioli Pharma is expected to significantly grow Gerresheimer’s revenues by 15% to 20% and be margin accretive as early as 2025, enhancing both revenue and net margins.
  
• The introduction of innovative high-value products, such as the SQ Innovation Lasix ONYU on-body drug delivery device, indicates potential for revenue growth, with initial revenues anticipated from Q1 2026 and strong margins expected from these proprietary offerings.
  
• Increased focus on biologics, which show significantly faster growth than the overall pharma market, is set to expand Gerresheimer’s revenue share in this market from 11% in 2023 to 15% in 2024, driving revenue growth and margin expansion.
  
• The integration of system solutions with a diversified portfolio, especially after the Bormioli acquisition, allows leveraging synergies for high-value plastic solutions, expected to contribute positively to earnings and margins in the coming years.
  
• Continued investments in capacity expansion for systems and solutions for biologics, with a significant percentage of CapEx dedicated to these growth projects, are laying the foundation for future revenue and earnings growth.

Gerresheimer Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gerresheimer's revenue will grow by 13.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 7.8% in 3 years time.
• Analysts expect earnings to reach €230.9 million (and earnings per share of €6.63) by about April 2028, up from €109.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €325.1 million in earnings, and the most bearish expecting €178 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, down from 21.4x today. This future PE is lower than the current PE for the GB Life Sciences industry at 26.2x.
• 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 5.96%, as per the Simply Wall St company report.

Gerresheimer Future Earnings Per Share Growth

Risks

• The delayed FDA approval for the SQ Innovation Lasix ONYU device may postpone anticipated revenues, pushing them beyond 2025, which could negatively affect short-term revenue growth targets and profits.
  
• The acquisition of Bormioli Pharma, while strategic, may introduce integration risks and potentially distract management, which could impact expected synergies, affect future revenues or cause margin pressures if integration costs are higher than expected.
  
• The destocking impact on the vial and biologics businesses suggests market volatility, which might lead to unpredictable revenue and profit performance in the short term.
  
• The company's high levels of debt financing for recent acquisitions, such as Bormioli Pharma, could increase financial risk and put pressure on net margins if leverage metrics do not improve as projected.
  
• There is execution risk related to new growth projects and capacity expansions, particularly in biologics and GLP-1 segments, which may not produce the expected revenue increases if market demands shift or unforeseen operational challenges occur.

Valuation

• The analysts have a consensus price target of €99.327 for Gerresheimer 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 €122.5, and the most bearish reporting a price target of just €86.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.0 billion, earnings will come to €230.9 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 6.0%.
• Given the current share price of €67.9, the analyst price target of €99.33 is 31.6% 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.