Allergy+ Strategy Will Reach Millions With New Therapies

Key Takeaways

• Expanding into new patient groups and segments will drive long-term revenue growth in respiratory allergies and broader allergy space.
  
• Focus on optimizing operations and increasing production capacity can enhance margins and earnings, supported by strategic initiatives in key markets.
  
• Challenges in revenue growth and dependency on European markets, alongside regulatory issues, threaten ALK-Abelló's future revenue and market expansion potential.

Catalysts

Operates as an allergy solutions company in Europe, North America, and internationally.

• ALK-Abelló is expanding its addressable market in respiratory allergy by adding new patient groups, particularly children, and expanding into new segments. This is expected to drive future revenue growth.
  
• The company is building new revenue streams in the broader allergy space, including the in-licensing of the nasal spray neffy for anaphylaxis, which could positively impact future revenue and margins.
  
• ALK-Abelló is optimizing its business platform to focus on high potential growth levers, reducing complexity, and generating cost savings. This is expected to enhance net margins and earnings in the future.
  
• The company is executing the Allergy+ strategy, targeting 5 million patients by 2030 and focusing on pipeline development in both existing and new therapy areas, which is anticipated to contribute to long-term revenue growth.
  
• ALK-Abelló is investing in increasing production capacity to support future growth, with strategic initiatives in markets like Japan, India, and China, which are likely to impact revenue and earnings positively over the coming years.

ALK-Abelló Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ALK-Abelló's revenue will grow by 12.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.7% today to 19.8% in 3 years time.
• Analysts expect earnings to reach DKK 1.6 billion (and earnings per share of DKK 6.95) by about April 2028, up from DKK 815.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.5x on those 2028 earnings, down from 39.9x today. This future PE is greater than the current PE for the GB Pharmaceuticals industry at 17.1x.
• 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 4.74%, as per the Simply Wall St company report.

ALK-Abelló Future Earnings Per Share Growth

Risks

• Revenue growth challenges in North America and international markets were noted, with flat revenue in North America and only a 4% increase in international markets, which could impact overall revenue growth targets.
  
• The recent one-off investment costs, including those related to strategic initiatives and optimization programs, have affected operating margins, as seen with a Q4 operating margin of only 14%, potentially impacting future earnings if similar costs recur.
  
• Neffy, a newly licensed product, is projected to have modest contributions in the second half of the year, with uncertainties regarding pricing potentially impacting revenue projections.
  
• Dependence on European markets for growth, particularly from tablet sales, suggests a vulnerability should that market's conditions change, which could affect future revenue sustainability.
  
• Delays and regulatory challenges, such as those seen in China with import license renewals, could hinder expected market expansions and revenue growth from those regions.

Valuation

• The analysts have a consensus price target of DKK181.25 for ALK-Abelló based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be DKK7.9 billion, earnings will come to DKK1.6 billion, and it would be trading on a PE ratio of 29.5x, assuming you use a discount rate of 4.7%.
• Given the current share price of DKK147.0, the analyst price target of DKK181.25 is 18.9% 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.