Roche Holding AG (ROG:SWX) stock: Analysis

The action Rock is listed on the Zurich Stock Exchange under the symbol "ROG". This analysis follows the one carried out in February 2020, a few days before the corona crash.

Valorisation de l'action Roche

Thanks to an improvement in fundamentals linked to the health crisis, combined with a concomitant drop in the share price of almost 10%, Roche is currently trading at a slightly more attractive price than last year. We recall that it was indeed really overpriced during our last analysis. The ratios are now as follows:

• price/recurring earnings: 18.62 (current) / 23.54 (average)
• price/book value: 7.32
• price / tangible assets: 17.66
• price / sales: 4.56
• price / free cash flow: 24.86 (current) / 16.83 (average)
• enterprise value / free cash flow: 25.47 (current) / 17.22 (average)
• EBIT / enterprise value: 6.80%
• EBITDA / enterprise value: 6.96%

So there is a slight improvement. However, we are still far from the mark in terms of tangible assets, book value and sales. Let us recall that a price/sales ratio above four is in principle a good sell signal.

Dividende de l'action Roche

The yield is quite interesting in the current times, with 2.9%. In addition, the dividend has a small margin of safety compared to the fundamentals, which should ensure its payment in the future, or even allow a very slight increase. The distributions represent in fact:

• 54.3% of current profit and 68.59% of average profit
• 72,56% of current free cash flow and 49,07% of average free cash flow.

The company has also been increasing its dividend slowly but surely in recent years, at an average annual rate of 2.1%. There is a strong chance that this will continue in the medium term.

Fundamentals

Tout comme le dividende, le bénéfice, la valeur des actifs et les réserves de liquidités progressent sur le long terme, ce qui prouve la solidité du modèle d'affaires du géant pharmaceutique Bâlois. Le groupe a notamment su tirer son épingle du jeu lors de ce dernier exercice si particulier, parvenant à accroître encore quelque peu son bénéfice par rapport à l'année précédente, déjà excellente. Les ventes de tests pour le chinese virus et la demande de certains médicaments comme l'anti-inflammatoire Actemra, utilisé dans le cadre de cette fichue pandémie, ont donné un sacré coup de main à Roche pour atteindre ces bons résultats.

Cash reserves are healthy and virtually identical to the previous year, with a current ratio of 1.3 and a quick ratio of 1.01.

Profitability and profitability

There gross margin est encore plus impressionnante que celle de l'exercice précédent, avec 72.7%. Idem pour la marge nette, qui grimpe jusqu'à 24.51%. Notons encore une marge de free cash flow également intéressante, avec 18.36%.

In terms of profitability, there is nothing to complain about, with an ROA (up) at 16.6%, a CFROA at 21.55% and an ROE of 39.34%. This is a company that is not affected by the crisis...

Debt

While SMEs are getting into debt, the Basel giant continues to reduce its liabilities as it does every year. The long-term debt ratio to assets has thus fallen to 12.88%. Total debt now represents 0.42 times equity. It would only take Roche one year to repay it with its free cash flow.

Rendement pour l'actionnaire

It should be noted that the repayment of net debt represented an average annual return for the shareholder of 2.06% over the last five years. Furthermore, this was not achieved at the cost of a capital increase, as the number of shares outstanding remained virtually identical over the same period.

Overall, the average annual shareholder return has been 4.81% over the last five years, which is very appreciable. 81% of the free cash during this period was used to repay debt and pay the dividend. This generous shareholder return is therefore highly dependent on the free cash flows achieved by Roche.

Cash cow

Precisely, the Swiss pharmaceutical group stands out as we have seen previously by a rather impressive profitability and profitability. This is valid for this last financial year, but also for the previous ones. The average gross margin over the last five years is thus 71.4% and the net margin 20.2%. The company is helped in this by relatively low overheads (30% on average) as well as correct capital expenditure (51% of profit on average).

Risques de l'action Roche

Le titre a affiché une volatility relativement faible par rapport au marché sur ces douze derniers mois, avec "seulement" 21.72%. Ceci confirme le caractère défensif de l'action Roche, qui possède par ailleurs un bêta de 0.85, indiquant une sensibilité pas trop importante aux variations du marché.

Let us also note a high Z-Score (Altman), at 5.42 (green zone), as well as an equally impressive F-Score (Piotroski), of eight points out of nine. Roche is therefore not ready to go bankrupt, it is very solid financially, with fundamentals that are becoming even better.

Conclusion

Ultimately, despite a more attractive valuation than a year ago, we find ourselves practically at the same point.

Roche is certainly an extremely profitable and profitable company, which provides a generous return to its shareholders. There is little doubt that this will continue in the future. The current health paranoia may even represent an opportunity for the Basel giant.

However, paying more than four times sales and more than seven times book value is inviting a dangerous backlash.

Are you willing to take the risk?