Frankfurt Investors urgently expect news from the Dax company Fresenius on the subject of corporate restructuring and a possible spin-off of corporate divisions. It could be this Tuesday: Then the healthcare group and its dialysis subsidiary Fresenius Medical Care, which is also listed in the Dax, will present their annual figures.
“Currently there is probably only one thing that the Fresenius management can do to increase the value: spin-offs,” says analyst Daniel Grigat from the investment bank Stifel.
In particular, many investors favor a separation from the dialysis subsidiary Fresenius Medical Care. “A spin-off would open up new perspectives for investors and shareholders,” says Sébastien Buch, fund manager at Union Investment, the Handelsblatt.
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The former stock market darling Fresenius lost a lot of investor confidence after a canceled takeover and two profit warnings in 2018. After a transitional year in 2019 with efficiency measures and investments, the turning point should come. But the corona pandemic destroyed the plans.
Splits are trending
The dialysis subsidiary Fresenius Medical Care is particularly hard hit: because a disproportionately large number of dialysis patients have died, the largest subsidiary expects a 2021 profit slump of a quarter. FMC and Fresenius have launched new efficiency programs, but they will take time to take effect.
The prospect of a review of the group structure gave the Fresenius share a boost for a while last year. But management and the board of directors dampened expectations of a quick reorganization.
There is a trend towards spin-offs. Across all industries, companies are separating from business areas in order to further develop their strong pillars. Focused companies achieve higher valuations on the stock exchange than diversified groups – and Fresenius is broadly positioned in the healthcare market.
>>> Read here: How other spin-offs have affected shareholders in the past
With its four business areas, the company holds a leading position in many markets. The subsidiary Fresenius Medical Care, which accounts for around half of Fresenius’ sales, is the world’s largest dialysis provider. Helios is a leading hospital group in Europe. Kabi offers infusion drugs and nutritional solutions, and the smallest subsidiary, Vamed, builds and operates hospitals.
At the Fresenius Group, which achieved sales of more than 36 billion euros and a profit of 1.7 billion euros in 2020, the sum of the parts is likely to be worth more than the entire group.
According to Bloomberg, Fresenius is valued at eight times Ebitda with an enterprise value of around EUR 58 billion, while subsidiary Fresenius Medical Care is more than nine times higher with an enterprise value of around EUR 31 billion. The other divisions are also likely to be valued relatively higher than the group as a whole.
The business of the Fresenius drug division Kabi is in part comparable to that of generic companies such as Teva or Viatris, which according to Bloomberg are currently valued at more than ten times Ebitda.
And for listed hospital groups in the USA, which can only be compared to Helios to a limited extent, the enterprise value is seven to eight times Ebitda.
Stifel analyst Grigat calculates a company value of around 36 billion euros for Kabi, Helios and Vamed. Including FMC, the theoretical company value of Fresenius would be in the direction of 70 billion euros move.
According to the markets, there are many reasons for separating from FMC: Fresenius only holds 32 percent of the shares, but controls the company through the structure of a partnership limited by shares and fully consolidates it. “With a spin-off from FMC, Fresenius would also be rid of a large part of the stress factors that the dialysis subsidiary currently has,” says fund manager Buch.
Investors are also speculating about Kabi spin-off
At FMC, after the excess mortality of patients in the pandemic, Buch expects the problem of high wage cost increases: “Nursing staff in the dialysis area is scarce. Added to this is the high inflation in the USA. The reimbursement rates will be adjusted over time, but this will only happen with a delay of around two years,” says the expert.
With a separation from FMC, Fresenius could also significantly simplify its extremely complex reporting and also reduce the high level of debt of EUR 24.8 billion, which could open up scope for acquisitions and thus new growth options for Fresenius. According to Berenberg analyst Tom Jones, the synergies between the two businesses are becoming harder to see and capital from a sale could be invested in the other businesses.
But there is also speculation on the markets about the possibility of splitting off the Kabi drug division. That could bring Fresenius significantly more money than a sale of the FMC shares. Stifel analyst Grigat expects the Kabi division to be worth almost $18 billion. Because Kabi is the very own business of the now 110-year-old Fresenius Group, many analysts do not consider this option very likely.
“Basically, Kabi could well deliver its own stock market story. But Fresenius’ management will probably not change that. The company has development prospects in the field of biosimilars, among other things. You want to keep this potential,” says Union fund manager Buch. In addition, Fresenius brought ex-Siemens manager Michael Sen to the top of Kabi last year in order to trim the division for efficiency and growth. This is seen as a strategic decision: Investors see Sen as a potential successor to Fresenius CEO Stephan Sturm, 58.
A spin-off from Helios, whose company value is estimated by Stifel at more than 16 billion euros, would also be possible, but many analysts also consider it not very likely: Since there is no end in sight with Covid, hospitals are currently not in the favor of Investors, says Stifel analyst Grigat.
The general weather situation in the hospital market also speaks against a spin-off for Union fund manager Buch. In the pandemic, the hospital sector has received new attention. “Society likes that the hospital system is largely publicly owned,” he says. That is not conducive to Helios’ acquisition strategy.
Assistance: Arno Schütze
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