Half year revenue rose 16%, ignoring the impact of exchange rates, to DKK (Danish Kroner) 83.3bn. That was driven by strong growth in Diabetes and Obesity care, the latter up 84%.
Operating profit rose 14% to DKK 37.5bn, again ignoring the impact of exchange rates. Costs rose across the board, but higher sales pushed margins up.
The group announced a dividend of DKK 4.25. The DKK 24bn share buyback programme continues, with another tranche of DKK 4.4bn set to complete over the third quarter.
Full year guidance has been raised. Sales growth's now expected to be 12-16%, with operating profit growth between 11-15% - both ignoring the impact of exchange rates.
The shares were broadly flat following the announcement.
Novo Nordisk is among the world's leading providers of diabetes treatments, and since diabetes is a chronic disease demand is very reliable. Insulin makes up a touch shy of 33% of the group's sales, but that's shrinking as it expands into higher-growth treatment areas.
One such area is GLP-1 products to treat type 2 diabetics. These drugs stimulate the body to produce more insulin after eating, avoiding having to inject insulin straight into the body and reducing the chances of complications.
Sales of this category have been impressive and growth of Ozempic has been rapid. The launch of Rybelsus, a tablet form of the treatment, has also added to Novo's growing market share within the diabetes care market.
A dominant market share and attractive end markets would be enough to attract investors' attention on their own, but Novo also runs a pretty tight ship operationally. That's allowed the group to boast operating profit margins just north of 45%.
Historically, the group's also come with a rock-solid balance sheet. Last year we saw the group swing from a net cash position to net debt, due mostly to the Dicerna Pharmaceuticals acquisition. This is little more than a bugbear for now--it's not unusual for a pharmaceutical giant to operate from a net debt position. But Dicerna's smooth transition to the Novo portfolio will be an important factor to watch to help justify the impact.
There are other challenges to keep in mind as well.
Insulin pricing is under pressure in the US, while competition is heating up in the smaller haemophilia business too. So far, the group's newer products and international expansion are more than offsetting those headwinds, but it's something to keep an eye on.
Governments and patients are increasingly unwilling to pay extortionate prices for lifesaving, but chronic, medicines. With health systems emerging from the current crisis with budgets stretched thin, that trend is only likely to continue. The valuation is some way above the long-term average, so any material pricing changes could be a disappointment.
We continue to think Novo offers something distinctive. Pharmaceutical companies with a strong balance sheet and a defensive market aren't a dime a dozen. But the stock's valuation has been rising over the longer term, pushing down the prospective dividend yield, even as the pressures mount. That could be storing up future problems if growth slows.
Novo Nordisk key facts
- Forward price/earnings ratio: 28.4
- Ten year average forward price/earnings ratio: 22.0
- Prospective dividend yield (next 12 months): 1.7%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Results (constant currency)
Diabetes care sales rose 15% to DKK 65.7bn. This reflected strong growth in GLP-1 sales which offset a decline in insulin sales. The group's global market share grew from 29.6% to 31.0%, reflecting gains in all regions except China.
Obesity Care revenue was close to double last year, at DKK 7.0bn. Sales growth was driven by both North America Operations and International Operations. New product Wegovy saw production stop due to supply chain issues, those have been resolved and production began again during the second quarter.
Rare Disease sales were flat at DKK 10.6bn. An increase in sales from rare blood disorder products was offset by a decline in rare endocrine product sales.
Sales in North America rose 24% reflecting growth in GLP-1 diabetes and Obesity care. International sales rose 10%, reflecting growth in all therapy areas except insulin.
Free cash flow was DKK 42.7bn, up from DKK 32.7bn, reflecting higher profits. At the end of the period, the group had a net cash position of DKK 5.6bn.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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