Takeover battle and soaring profits! Evotec, Bayer, Saturn Oil + Gas

Saturn Oil & Gas: Strong profits!

What do Donald Trump and star investor Warren Buffett have in common? Their love of oil! One promotes the industry, and the other invests heavily in it. No wonder, then, that oil stocks are among the winners of the incoming US administration. While heavyweights like Exxon have already jumped on the bandwagon, mid-sized producers have some catching up to do. Saturn Oil & Gas belongs to this group.

Saturn has grown to a mid-sized oil producer through a series of acquisitions in just a few years. All oil fields are in Canada and the Company has started a share buyback. The latest quarterly figures were also convincing, with record highs.

Saturn Oil & Gas produced over 39,000 barrels of oil equivalent per day in the past quarter. This was 49% more than in the same quarter of the previous year. Adjusted EBITDA rose by 35% to CAD 135.8 million, although realized oil prices were 12% lower than in the previous year. Net income of CAD 101.6 million or CAD 0.50 per share was also significantly higher than in the previous year.

The experts at researchanalyst.com were enthusiastic about the quarterly figures, especially in light of the weak oil price. Overall, they expect an adjusted EBITDA of almost CAD 780 million for the full year. Debt, which had risen sharply due to the acquisition financing, should fall to around CAD 650 million by the end of the year. This would also reduce the enterprise value / EBITDA ratio to around 1.4. For mid-sized North American producers, this factor is usually closer to 3.8. Saturn is, therefore, very attractively valued. In addition, experts point out that debt levels fall.

Evotec: Takeover battle and price decline?

Even though Evotec has been mentioned as a takeover candidate several times during the year, last week's news came as a shock: the relatively unknown US biotech company Halozyme Therapeutics offered EUR 11 per Evotec share. The Evotec management responded cautiously, stating they had not been informed of the bid beforehand. According to the Börsen-Zeitung, Evotec is reportedly preparing to fend off the takeover attempt and aims to remain independent. According to the article, the US bank Morgan Stanley has been brought on board to assist with this effort. As a result, Evotec's share price fell significantly yesterday, as maintaining independence is expected to delay any substantial recovery in its share price.

Deutsche Bank's opinion of Evotec shares is clear: "Sell." The analysts' target price of EUR 4 is far removed from the EUR 11 takeover bid. The takeover bid has notably caused Evotec's share price to disconnect from its fundamental valuation.

Bayer: Analysts slash target price

After Bayer's share price plummeted following the publication of weak quarterly figures last week, the news continues to come thick and fast this week. Yesterday, analysts at Berenberg significantly reduced their price target for the shares of the agricultural and pharmaceutical company from EUR 28 to EUR 22. The experts, therefore, see no upside potential even at the current multi-year low. For a substantial share price recovery, it would be necessary for Bayer to report a sustained increase in profits or to be able to settle the numerous court cases in the United States – whether through victories or acceptable settlements.

Just hours after the publication of the research update, Bayer announced that it had acquired the marketing rights for a novel, yet-to-be-approved heart drug in Japan from the Californian-based biopharmaceutical company Cytokinetics. Bayer is initially paying EUR 50 million, with an additional EUR 90 million tied to milestones leading up to the market launch. Should the drug be launched and meet Bayer's sales targets, a further EUR 490 million may be due. The drug, Aficamten, is intended for the treatment of patients with hypertrophic cardiomyopathy (HCM), a disease in which the heart muscle becomes abnormally thick. After the announcement, Bayer's share price recovered slightly from its daily lows.

The fact that Bayer is strengthening its pharmaceutical pipeline is positive and necessary. However, as the analysts at Berenberg aptly summarize, a turnaround in the share price will require a sustained increase in corporate profits or – preferably – a reasonably affordable end to the lawsuits in the US. By contrast, the cash registers are ringing at Saturn Oil & Gas. The ongoing share buyback program, prospects for high dividends, and the favorable political environment in the US all support buying the stock. Evotec is always good for a surprise. It remains to be seen how serious the takeover bid is. If the takeover fails, the share price is likely to fall initially.