Actelion: Good Q3 underpinned by currencies ahead of macitentan phase III data presentation

Fair Value under review UNDER REVIEW vs.       BUY

News published on October Thursday 18, 2012
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ANALYSIS

  • This morning Actelion posted a very good set of results for Q3 well above consensus estimates. Sales came out at CHF436.9m compared to CHF424.8m for the Street i.e. a decrease of 3% in local currencies in Q3 in line with the H1 performance with Tracleer stabilizing its decline (-4%) whereas Ventavis grew slightly in Q3 after a decline by 8% in H1. Veletri was less buoyant. Note that currencies probably played a significant role during the quarter although reporting does not allow us to make a precise calculation. Over H1, currencies had a negative impact of 1% on sales and earnings whereas over 9 months the impact turned positive by 4% on sales and 7% on earnings suggesting positive impacts of around 13-14% and over 20% respectively for the last quarter. In local currencies, sales declined 3% in H1 and in Q3 while core earnings grew 14% and 11-12% respectively. So there is no big swing to report when figures are considered in CER terms whereas currencies were badly captured. Another reflection of this is the fact that Actelion is simply reiterating its full-year guidance in local currencies for 2012 and 2013.
  • Operating expenses were well controlled during the quarter and since they are over-proportionally located in Switzerland they were not particularly affected by currency impacts in the opposite direction. In SG&A, the benefit from reducing the allowance for doubtful debt receivables was only CHF2.9m such that the decline was mostly attributable to strict cost control. A CHF5.1m restructuring charge has been booked in Q3. In the end, core EPS came out at CHF0.80 compared with the CHF0.69 expected by consensus.
  • Now what matters for Actelion is that it delivers strong phase III data for macitentan at CHEST (October 23, in Atlanta). Abstracts are being released and details look good with efficacy irrespectively of background therapy (38% risk reduction at 10 mg despite PAH therapy, 55% without) whereas mortality was reduced by 50%. Safety looks manageable.
VALUATION
  • As coverage is being transferred, we have the opportunity to change the way we set up FV from a SOTP approach to a more traditional one that includes DCF now that macitentan’s uncertainty has been removed. We will determine a new FV for Actelion as soon as possible. For the time being, we are putting our FV and rating under review although it is fair to say that Q3 results (with currencies in focus) and details from the SERAPHIN phase III at CHEST support further upside in the share price.
Eric Le Berrigaud, eleberrigaud@bryangarnier.com

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