6
Roche Holding AG (RO.SW)
- Equity
- Switzerland
- Healthcare
RISK
RETURN
Key risk factors
Negligible price volatility
Strong & resilient to price shocks
Low default risk
Key return factors
Very strong margins and returns
Solid dividends
Weak growth
Company profileRoche Holding AG engages in the pharmaceuticals and diagnostics businesses in Switzerland, Germany, the United States, Austria, Netherlands, the United Kingdom, France, Belgium, and internationally. The company offers pharmaceutical products for treating oncology, neuroscience, infectious, immunology, cardiovascular and metabolism, ophthalmology, and respiratory, as well as anemia, cancer, dermatology, hemophilia, inflammatory and autoimmune, neurological, and transplantation. It also offers in vitro tests for the diagnosis of various diseases, such as cancer, diabetes, Covid-19, hepatitis, human papillomavirus, and other diseases. In addition, the company supplies diagnostic instruments and reagents. The company was founded in 1896 and is headquartered in Basel, Switzerland.
Valuation: Slightly undervalued
Multiple
TTM
NTM
P/E
16.00
14.00
PEG
-2.20
-
P/B
6.30
4.00
P/S
3.20
3.10
P/FCF
17.30
7.90
EV/EBITDA
10.70
9.50
Based on key historical and expected multiples, the stock is slightly undervalued relative to its peers. In particular, the stock is reasonably priced on P/E, of fair value on EV/EBITDA, and undervalued on P/FCF.
Performance: Mixed
Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 6ppts and its growth accelerated by 4ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.
Analyst view: Slightly negative
The average target price is 252 and suggests 0% downside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 252.0. This is lower than the current market price, meaning that even the most optimistic analyst does not see upside potential. On the other hand, the most pessimistic analyst has a target price of 252.0. This is equivalent to 0% downside potential in the worst case.
Profitability: Very strong
RoE
Roche Holding AG reported a return on equity (RoE) of 39.2% in the last 12 months, down from 40.1% in FY23. The market consensus projects an RoE of 44.2% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 12.7% in the last 12 months, a decrease from 12.9% in FY23. The market analysts predict that RoA will be 13.0% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 17.5%, above the peers. The consensus estimate for FY24 for RoCE is 25.7%, again ahead of the peers.
Net margin
EBITDA margin
Historically, ROG.SW has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 19.6%, down from 19.6% in FY22. The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 33.8% in the last 12 months, a decline from 34.8% in FY22.
RoIC / WACC = 4.7(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 4.7 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Weak
Revenue
EBITDA
EPS
Free cash flow
ROG.SW reported revenue of CHF 58 716mn in the last 12 months, down 7% from FY22. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 7% from FY22 to CHF 14.39. Market expects EPS to reach CHF 17.1309 in FY24.Revenue has been declining slowly over the past several years (negative), while Declining revenue and insufficient cost control have resulted in a visible fall in EBITDA in recent years (negative). The combination of deteriorating revenue and poor cost control resulted in a notable fall in EPS (negative). Free cash flow has naturally followed the declining EBITDA. We emphasize the highly volatile dynamics of FCF. On the positive side, revenue, EBITDA and EPS dynamics is very stable.
Dividends: Solid
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been strong and significantly above its peers. At the same time, the average five-year yield has been significantly higher and exceeded most of its peers. On average, the company pays dividends annually.
Default risk: Low
The risk of default is low. We note strong positions in its industry, robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors, we point to excessive margin volatility.
Volatility: Negligible
In normal market circumstances, RO.SW is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.
Stress-test: Negligible
In highly turbulent market conditions, RO.SW is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.
Selling difficulty: Moderate
RO.SW has average trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is relatively stable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.