Fagron - Easy Cash Built a House of Cards
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The stock is now left to market forces as consensus expectations are in free-fall. The company did not deliver enough information at the 1H15 results to make a fundamental forecast on sales 2015 and beyond. This could be related to the US investigation into compounded drug pricing. The company might not want to implicate itself before the end of the investigation. This process can take a year to 18 months before fines are imposed. It is clear the due-diligence in the 2014 US acquisitions missed some obvious warning signs. The consensus growth expectations of the M&A engine were too optimistic and ignored the capex costs and balance sheet risks to achieve that growth.This report makes a "best effort" forecast based on the scarce public available information for growth, profitability and capital needs. The analist followed previous parent company Omega Pharma as analyst at Fortis (2004-07) and as significant investor at Robeco (2007-12).
Fagron supplies products, services to professionals and institutions in the healthcare sector in Europe, the U.S.A. and Brazil. Co.'s activities are subdivided into four divisions. Through Fagron, Co. offers products and concepts for pharmaceutical compounding. Through Arseus Dental, Co. supplies dental products and concepts to dentists and dental laboratories in Belgium, the Netherlands, France, Germany and Switzerland. Through Arseus Medical, Co. supplies medical and surgical products to specialists, elderly homes, homecare nurses and hospitals in Belgium and the Netherlands. Through Corilus, Co. supplies ICT total solutions for medical specialists in Belgium, the Netherlands and France.
ValueScan operates as a team of independent analysts with strong industry track records. Valuation is based on a standardised method for all companies, independent of their size or sector . Each report delivers a long term analysis of the business plan and cash flows per segment. The model identifies 3 main drivers that are examined separately : Growth, Profitability and Capital needs. Most equity research overemphasises Growth and ignores Capital needs. An EVA analysis is presented to back test the results. Valuation theory is simplified to a level that strikes the right balance between complexity and flexibility. Valuescan operates fully independent from financial institutions, companies or other conflicts of interest. ValueScan analysts avoid mass investor happenings and herd behaviour. The ValueScan method assumes that eventually a company will reflect its true fair value when hype or over pessimism normalises.
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