Cash in?

In mid-2022, Agios Pharmaceuticals (NASDAQ:AGIO) was mentioned on this blog as kind of a special situation. It was explained that the company was roughly available at its cash value. Some of the value described seems to have materialized now and the stock increased from $17.60 to around $33.00. Because of many other excellent opportunities, this might be a good moment to cash in and realize the profit of almost 90% - congratulations!

Bayer AG (ETR:BAYN)

Intro

When is enough enough? Since Bayer closed the acquisition of Monsanto in 2018, the company hasn’t been the same. Bayer incurred huge litigation costs associated with the takeover, a lot of trust and reputation has been lost and the share price fell from more than €100 per share to below €30 currently. A debacle.

Bayer generates around €50bn in revenues, of which 50% is from crop science, 38% from pharma and the remaining 12% from consumer health.

 

Valuation

The big elephant in the room are the litigation costs and hence free cash flow is impacted by litigation pay-outs and also one-time costs for transformation to reorganize the business.

Bayer currently trades below book value, showing a P/B of 0.85. Just recently, the company basically suspended its dividend (they still pay out a small minimum dividend which is marginal) for the next three years.

Adjusted for the litigation effect, Bayer is still expected to generate an EPS of around €5-6, which translates into an adjusted P/E of roughly 5x.

In sum, if the litigation effect is taken out, rather cheap valuation metrics.

 

What’s next?

Is now enough? Of course, this is impossible to answer. However, it seems like that everybody has left this ship who wants to be out: results have been bad, litigation takes longer than expected and the dividend has basically been suspended. After this last bad news, the stock has held steady might indicating that the worst for the stock is over.

Although it needs a lot of phantasy currently, if we fast forward 3-5 years, the company will presumably have reduced its debt load by approximately €4-6bn, hopefully solved the crop science issues and invested into its crop science as well as pharmaceutical pipeline. And then, we may see a resumption of the dividend payments once again. Time will tell.

 

Current Price

€28.82 per share

 

Disclosure

The author is currently not long Bayer; however, his close relatives have some exposure.

 

Hong Kong Ferry Holdings (HKG:0050)

Intro

Hong Kong Ferry Holdings is mainly engaged in property development and investment. As the name says, they also operate a ferry business and has expanded into the medical field.

Major sources of income are currently rental income from properties and interest income on the cash reserves.

Due to the large cash reserves, the company paid out a special dividend for its 100^th anniversary in 2023 of HK$1 per share besides its ordinary dividend.

Warning: this is – again – a very illiquid stock and hence not suited for everybody.

 

Valuation

The balance sheet as of mid-2023 can be summarized as follows:

• HK$3.5bn of non-current assets (mainly investment properties)

• HK$1.8bn of inventories (mainly properties in development)

• HK$1.8bn of cash

With no financial debt, this leaves equity of HK$6.9bn. Compared to the market cap of HK$1.6bn, the P/B ratio stands at 0.23.

 

What’s next?

At the current stock price, it is possible to buy this 100-year-old company at just the cash in the bank value and all real estate and other business is given on top of that for free.

All in all, although there might be macro risks, this seems to be a solid risk-reward situation.

 

Current Price

HK$4.50 per share

 

Disclosure

As with most shares discussed on here, the author is long Hong Kong Ferry.