Report
Hugo Solvet

ALCON | Better standing on its two own feet | Not rated | FVCHF57

Since its acquisition by Novartis in 2010, Alcon has had a chequered history. Following the implementation of a turnaround plan in 2016, which is now entering its last phase, Alcon’s foundations have been fixed and the division is back on track. Alcon is set to deliver above-market growth (BGe 4.9%CER), building on its leading market shares of 43% and 21% in the surgical and vision care businesses respectively. Leveraging its infrastructure should enable Alcon to ramp up its Core EBIT margin from 17% to 23.2% towards 2023, delivering a CAGR in EPS of 12% over the same period.
The recovery of the business alongside increasing R&D productivity at Novartis motivated the spin-off of Alcon in the form of an IPO. Alcon is due to trade as a stand-alone company on 9th April (ALC SW) with each owner of 5 Novartis Pharma shares due to receive 1 Alcon share (5:1). While Alcon is not trading yet, the prospectus made available provided sufficient information to work on the valuation of the company, which is to be demerged from Novartis.
We see this demerger as a win-win situation for the two parties enabling them to be valued as pure-players. Our valuation of Alcon is based on a combination of a DCF, as well as 2019e EV/sales and EV/EBIT multiples of 4.0x and 21x respectively. The result in a Fair Value of CHF57 /share or a market cap of CHF28bn. From Novartis' perspective, our SOTP methodology so far valued Alcon at USD17-18bn within Novartis. It would seem that 1+1 equals more than 2.
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Bryan Garnier
Bryan Garnier

Since 1996, Bryan, Garnier & Co has been growing with an absolute conviction that the investment banking landscape would experience a major revolution: most of the large local generalist banking groups will disappear to the benefit of a handful of global powerhouses, and an emerging group of independent, highly specialised boutique investment banks.

Analysts
Hugo Solvet

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