We are initiating coverage of Sorin with a Buy rating and a fair value price of EUR2.4, implying upside of 31%. Boasting 2011 revenues of EUR743m, Sorin is a world leader in cardiovascular medical devices. After André-Michel Ballester was appointed as CEO in 2007, the firm enjoyed robust margin expansion (480bp) that stretched over 2008-2011. It looks as if 2012 is more of a transition year in which Sorin is preparing the ground for future growth at its three main divisions (Cardiopulmonary, Cardiac Rhythm Management and Heart Valves). Solid top-line growth (CAGR 12-15: 3.7% then CAGR 15-17: 6.2%), should put Sorin in a position to significantly boost its margins in 2012-2017. Various M&A scenarios may also transpire with the impending expiry of the shareholders’ agreement in November 2013 (35.7% of the share capital).
- 2012 is a transition year. The repercussions of the earthquake in Italy and mounting SG&A and R&D expenses mean that Sorin has had to “refuel” during 2012 in order to resume its forward drive in 2013.
- A promising pipeline and margin improvement prospects. Following a development phase that has lasted around ten years, Sorin is bringing two new products to the market (Perceval-S and SonR) that will give its growth further impetus. This momentum should make for a 270bp increase in EBITDA margin in 2012-2015.
- Speculation is likely. Sorin may be the object of takeover rumours ahead of the expiry of the shareholders’ agreement (35.7% of the share capital) in November 2013. While our valuation of the share does not factor in this dimension, we could expect the speculation to buoy the share price.
- Valuation. The share presents a P/E 2013 of 13.1x, i.e. a discount of 23% relative to Medtech peers.
Sector Analyst Team: Martial Descoutures, Eric Le Berrigaud, Sébastien Malafosse