Vladyslav Koptiev @AtlasCapital: "$NVO – updated valuation model..."

Malta

$NVO (Novo-Nordisk A/S SPONS ADR) – updated valuation model Novo is moving fast: few days ago, the company announced EU approval of oral semaglutide to reduce cardiovascular death, heart attack, and stroke. Therefore, without further ado, here is my updated DCF calculation for $NVO Valuation suggests that the stock is trading at 44% discount to fair value estimate. If adjusted to FV within 3 years, it will generate an annual alpha ~ 22%. 𝗞𝗲𝘆 𝗮𝘀𝘀𝘂𝗺𝗽𝘁𝗶𝗼𝗻𝘀: 1. Explicit initial 5Y period growth @ 9%, next 5Y @ 7%. Historical 10-Year CAGR for Revenue now stands at 11%, and for EPS 14.3%. But we should not blindly use historical rates – it will be the wrong approach. Share price is based on expectations about the future, not on the past. In 2024, Novo Nordisk acquired three fill-finish manufacturing sites (sterile drug filling/packaging) located in Italy, Belgium, and USA. The acquisition was to expand manufacturing (fill-and-finish) capacity for diabetes and obesity treatments (e.g. Wegovy / Ozempic), given strong demand and current capacity constraints. Novo Nordisk expected the acquisition to negatively impact operating profit growth in the low single-digit in both 2024 and 2025. And this is exactly what is happening: management has recently lowered its operating profit growth forecast for 2025 to a range of 4%–10%, down from the previous 10%–16%. From 2026 onwards, there are expectations for increased filling capacity from new sites as production ramps. Additionally, If Novo Nordisk realizes the full restructuring savings (DKK 8 Billion) by end-2026, improves operational efficiency, and benefit from their higher-growth therapy areas (diabetes, obesity), they should be able to pick up growth beyond 2025’s depressed growth. With this in mind, I am factoring modest 9% growth within 5y explicit period, and 7% thereafter until year 10. 2. For terminal growth in perpetuity I am using 3%, reflecting long-term GDP growth for developed economies. 3. WACC @ 7.6% . 4. An EBITDA exit multiple of 11.5 calculated as Drugs (Pharmaceutical) * 75% (pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html) 5. To calculate Reinvestment required, I use the industry Sales to capital ratio (0.83), rather than NVO ratio (1.4 in 2024). As of 2024, This is in line with the law of diminishing returns, where companies will generate less and less growth on additional 1$ invested, and will eventually average down to industry. Strictly speaking, I should have factored more gradual ratio collapse from 1.4 to 0.83 throughout the forecasted period, but for prudential purposes I decided to use the industry average straight in the year 1 forecast. Look at it as an additional margin of safety. 𝗪𝗵𝘆 𝗜 𝗯𝗲𝗹𝗶𝗲𝘃𝗲 𝗶𝘁 𝗰𝗮𝗻 𝘄𝗼𝗿𝗸 𝗼𝘂𝘁 𝘄𝗲𝗹𝗹 Novo Nordisk is regarded as a wide moat business - with several compelling characteristics that foster durable competitive advantages and high profitability. My assumptions are modest – this helps to maintain a decent margin of safety. Novo has a history of ROIC improvements, or, as some are calling it, high Return on Incremental Invested Capital (ROIIC). And shareholders love this. 𝗪𝗵𝗮𝘁 𝗰𝗮𝗻 𝗴𝗼 𝘄𝗿𝗼𝗻𝗴 Even if the arithmetic suggests it’s doable, there are important risks: Competition: Other firms entering obesity / GLP-1 space (e.g. Eli Lilly) could get market share, price pressure, etc. Regulation & pricing pressure: Drug pricing, insurance coverage, reimbursement issues could limit upside. Manufacturing / Supply Constraints: To scale massively, they’ll need capacity, supply chain robustness, etc. Patent Expirations / Generic Entries: If core drugs lose exclusivity, margins / revenue could drop. Currency & Macro Risk: Exchange rates, regulation differences, global health policy, reimbursement vary. R&D Success: They need new products to sustain high growth (e.g. in obesity, cardiovascular, etc.). Execution Risk: Scaling commercial footprint, global distribution, regulatory approvals — always challenging. 𝗦𝗲𝗻𝘀𝗶𝘁𝗶𝘃𝗶𝘁𝘆 As you can see in the comments section, even my bear case scenario suggests 61% upside from the current level. You can also choose your own assumptions if you disagree with mine. Sensitivity table 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻: shares undervalued, 4% of portfolio. Disclaimer: I hold NVO shares. This is not financial advice. Do your own research. $SPX500 $VOO (Vanguard S&P 500 ETF) $VGT (Vanguard Information Technology) $BTC