Sanofi : Sanofi is dead, long live Sanofi !
Fair Value EUR80 vs. EUR70 (price EUR68.82) BUY
Among the European Big Pharma groups, Sanofi has by far been the best performer in 2012 boasting growth of 20%. Despite the sharp fall in earnings this year, the group has convinced investors of the relevance of its strategic refocusing and changes in the mix with a turning point now in sight. However, we have identified a number of undervalued growth drivers that add credibility to the group's 2015 targets and which the market has yet to price in.
Is 2012 still a challenge? We believe the market is gradually set to look towards 2015, for which Sanofi has set medium-term targets. Nevertheless, the time saved in terms of Lovenox generics and competition from Tresiba, as well as the lead gained in the cost-cutting programme and the boost provided by both currency gains and share buybacks should help 2012 EPS exceed guidance and the current consensus figures.
However 2012 is a start-point rather than an end-point. The commitments made by Sanofi in terms of growth out to 2015 could prompt it to limit the current year as far as possible (as a base for comparison) by favouring reinvestments in the growth platforms for example
The challenge set for 2015 is therefore becoming a key factor. We have noted however that the consensus is not buying into the average annual revenue growth flagged by Sanofi between now and then (5%) and as such, is also minimising the ensuing growth in margins. We believe the Diabetes franchise and the New Genzyme harbour the main sources of outperformance. Emerging markets and new products overlap these opportunities partly but not entirely, as shown by the ignored Auvi-Q.
The changes we have made to our Sanofi estimates have prompted us to significantly upgrade our sales and EBIT forecasts and we have increased our FV by EUR10 to EUR80 As such, we are making no change to our BUY recommendation.