Tag: European Market

Business Strategy and Outlook 

DiaSorin is a niche player in the fragmented in vitro diagnostic market with diagnostic specialization in infectious diseases. Its systems are able to perform tests for diseases such as hepatitis, tuberculosis, mumps, and measles. Despite operating in a competitive industry with high research and investment requirements, DiaSorin has consistently been able to expand its installed base and deliver strong returns for shareholders over time. DiaSorin’s research strategy has three pillars: expand the market with new testing, advance market share in existing testing areas with improved features, and maintain current market positioning, while also expanding margin growth from better efficiency and pricing. Though a combination of these objectives is necessary for long-term success, market expansion from new testing products, such as recently launched tuberculosis and Lyme tests, and the partnership with MeMed, are especially important for DiaSorin to maintain a competitive advantage in immunodiagnostics.

Building a stronger presence in this hospital setting is another area of focus for DiaSorin. The hospital market is somewhat less exposed to clinical point-of-care decentralization risks, given the consolidated nature of hospital testing and higher throughput requirements, and the opportunity for DiaSorin to drive further growth in this market, which has historically been less of a strength for the company than the clinical lab setting. In the near term, DiaSorin is prioritizing the integration of Luminex and rebalancing test capacity initiatives as demand for COVID-19 tests wane. Overall, the pandemic can be seen as a net benefit to DiaSorin as the exclusivity of tests on the Liaison XL analyser (used for COVID-19 testing) are likely to provide a permanent boost to the equipment installed base, and some of this additional placed equipment is likely to remain in use beyond the pandemic.

Financial Strength

DiaSorin’s financial strength is solid. The company ended 2021 with EUR 985 million of debt, taken on to fund the $1.8 billion acquisition of diagnostic and biotechnology firm Luminex. The firm’s current degree of leverage does not concern us, and it is expected DiaSorin to quickly pay down debt with free cash flow generated from the combined business. In the first quarter of 2022, DiaSorin reduced the debt load down to EUR 860 million, and further debt reduction over the course of the year is likely. One should not be surprised to see DiaSorin pay off all or most of the new debt within the next two to three years. On balance, the firm’s financial position remains strong, even with the additional leverage being added by the Luminex purchase, which was the largest acquisition in company history. Apart from 2016, when the acquisition of Quest’s Focus Diagnostics immunodiagnostic and molecular business created a negative cash flow year, DiaSorin has consistently thrown off positive free cash flow to the firm, averaging EUR 145 million annually over the last five years. There are no issues with cash flow going forward and forecast free cash flow averaging EUR 330 million annually through the five-year explicit forecast period. Additionally, DiaSorin has maintained a strong balance sheet and ended 2021 with a cash balance of EUR 340 million. DiaSorin has also maintained a small dividend over the past decade. Notwithstanding a special dividend paid in 2013, the dividend payout ratio has typically hovered around 30% of earnings. There are no difficulties seen with maintaining a dividend payout ratio of about 30%, given the healthy cash position of the firm.

Bulls Say’s

• DiaSorin has seen significant benefits from the ongoing COVID-19 pandemic, with diagnostic testing providing short-term cash flows and the higher installed base could support excess returns over the longer term. 

• The equipment lease model used by DiaSorin reduces short-term revenue variability from temporary demand disruptions, and securing minimum reagent sales should allow the company to take share in less differentiated testing. 

• DiaSorin has a history of niche expertise in infectious diseases, and it operates in an attractive competitive position as a growing diagnostics player.

Company Profile 

DiaSorin, headquartered in Italy, is a global provider of in vitro diagnostics–testing done on samples taken from the human body, such as blood and issue. DiaSorin produces and markets testing reagent kits for immunodiagnostics (55% of sales) and molecular diagnostics (35%) and has a total installed base of over 9,000 diagnostic systems. Licensed technologies contribute the remaining 10% of total sales, DiaSorin has a strong presence in Europe, the Middle East, and Africa; the region accounts for the largest portion of company revenue (44%), followed by North America (41%), Asia-Pacific (11%), and Latin America (4%).

 (Source: MorningStar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document. The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

Fresenius Medical Care treats end-stage renal disease patients through its dialysis clinic network, medical technology, and care coordination activities. Its strengths in these related areas help Fresenius maintain the leading global position in this market. After pandemic conditions recede, the company to benefit from solid demand in developed markets, such as the U.S., and even faster expansion in emerging markets, such as China, in the long run. With global ESRD patient growth expected to remain in the low to mid-single digits in the long run, the top-line growth for Fresenius to be toward the top of that range after a very weak 2021 and even higher earnings growth compounded annually during the next five years, as the firm wrings out more efficiencies and repurchases shares.

The company’s position as the top dialysis service provider and equipment maker in the world remains symbiotic and unique. Fresenius’ experience operating over 4,100 dialysis clinics around the globe (about 1,000 more than the next-largest player, DaVita) gives it insights into caregiver and patient needs to inform service offerings and product innovation. Fresenius uses clinical observations to develop and then manufacture even better technology to treat ESRD patients. It outfits all its clinics with its own brand of equipment and consumables, which has margin implications related to system costs and operating efficiency for staff. However, other dialysis clinics appreciate Fresenius’ technology as well, and Fresenius claims about 35% market share in dialysis equipment/consumables while serving only 9% of ESRD patients through its global clinics. Especially telling, main rival DaVita remains one of Fresenius’ top product customers. With growing clinical and payer support for at-home treatments, Fresenius is taking aim at those ESRD therapies with significant investments, too. It recently purchased NxStage Medical for home hemodialysis, which appears differentiated in the industry for its ease of use and physical size. The company also aims to improve on its peritoneal dialysis offering where Baxter has traditionally excelled.

Financial Strengths

Fresenius maintains a manageable balance sheet, despite its high lease-related obligations and capital-allocation strategy that includes acquisitions and significant returns to stakeholders. The company receives investment-grade ratings from the three major U.S. rating agencies, which should help it access the debt markets for any necessary refinancing. As of September 2021, Fresenius owed EUR 9 billion in debt and had lease obligations around EUR 5 billion. On a net debt/EBITDA basis, leverage stood at roughly 3 times, which appears manageable and in line with the firm’s previous long-term goal of 2.5-3.0 times, which excluded lease obligations. After generating over EUR 3 billion of free cash flow in 2020 including government aid, free cash flow looks likely to decline to about EUR 1.5 billion before rising to about EUR 2.0 billion by 2026. No one can believe the firm will face any significant refinancing risks during the next five years even as it continues to push cash out to stakeholders and pursue acquisitions. While acquisitions remain difficult to predict, the company pays a dividend to shareholders (EUR 0.4 billion in 2020) and makes distributions to noncontrolling interests (EUR 0.4 billion in 2020). It also repurchased EUR 0.4 billion in shares in 2020, and the more repurchases going forward. With those expected outflows to stakeholders and significant debt maturities coming due in the foreseeable future, Fresenius may be an active debt issuer going forward.

Bulls Say

• Diversified by geography and business mix, Fresenius should be able to benefit from ongoing growth in treating ESRD patients worldwide once the pandemic recedes. 

• Increasing at-home treatment rates could raise demand for the company’s at-home systems and boost how long patients can continue to work and stay on commercial insurance plans, which can positively affect the company’s profitability. 

• Through its venture capital arm, Fresenius is investing in new ways to treat ESRD patients, aside from more traditional dialysis tools, which should help keep it at the forefront of this market.

Company Description

Fresenius Medical Care is the largest dialysis company in the world, treating about 345,000 patients from over 4,100 clinics across the globe as of September 2021. In addition to providing dialysis services, the firm is a leading supplier of dialysis products, including machines, dialyzers, and concentrates. Fresenius accounts for about 35% of the global dialysis products market and benefits from being the world’s only fully integrated dialysis business. Services account for roughly 80% of firmwide revenue, including care coordination and ancillary operations, while products account for the other roughly 20%. Products typically enjoy a higher margin, making them a strong contributor to the bottom line.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.