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Sanofi – Investing in healthcare

06744 CC Trader Talk V2

Sanofi reported positive results for Q418 beating on revenue and earnings when compared to our estimates and consensus.

Revenues last year were led higher by Sanofi’s Genzyme biotechnology unit, were growth was up 37.4 per cent, driven by its immunology and rare blood disorder franchises.

We updated our model on the stock and maintain our overweight recommendation and price target at €95 per share.

We like Sanofi because in 2018, management restructured its business to position itself for a return to growth, notably agreeing a €1.9bn sale of its European generics business and making two biotech acquisitions, Bioverativ and Ablynx, to build a rare blood disorder franchise.

The Company also started to see benefit from its cost saving initiatives which we expect Sanofi to benefit from in the coming year.

In 2019 we expect sales to continue to increase as management continues focusing on increasing sales from Libtayo, its late entrant in the checkpoint inhibitor category, which was approved for cutaneous squamous cell carcinoma in the US last September. Management also left the possibility open for growth through acquisitions in 2019 in strategic areas.

We also expect margins to improve as the company continues to benefit from economies of scale as it rolls out its new products.

Investment rationale

We are of the view that Sanofi is well positioned to continue to benefit from an increase in sales and reduction in costs leading to improved margins going forward.

We are overweight on the sector as a whole and we believe Sanofi is well position within the industry to continue to benefit and generate positive returns for shareholders.

Valuation

Our €95 price target is factoring in a forward price-to-earnings ratio of 24x and a discount rate of 10%.

We are forecasting EBIT margins to fall to 17.75% and 18% in 2019 and 2020 respectively. Factoring in cost reduction via cost saving initiatives.

Our EPS forecasts are €03.99 and €4.17 for 2019 and 2020 respectively.

Key drivers of the company’s growth include rollout of new drugs.

About the company

Sanofi S.A. is a French multinational pharmaceutical company headquartered in Paris, France, as of 2013 the world’s fifth-largest by prescription sales. The company was formed as Sanofi-Aventis in 2004 by the merger of Aventis and Sanofi-Synthélabo, which were each the product of several previous mergers. It changed its name to Sanofi in May 2011. The company is a component of the Euro Stoxx 50 stock market index.

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