Novo-Nordisk A/S (NOVO B) DKK0.2 B
HL comment (5 August 2021)
Novo Nordisk reported net sales in the first half of 66.8bn Danish Kroner (DKK), up 12% year-on-year at constant exchange rates. That reflects strong growth in GLP-1 treatments, with more modest growth in insulin and haemophilia treatments.
Operating profits of DKK29.8bn were up 9% at constant exchange rates.
The board announced an interim dividend of DKK3.50.
Novo shares rose 3.6% 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. Unsurprisingly then the pandemic hasn't had much of an impact on the group's results - and the core narrative remains unchanged.
Novo has been branching out of insulin with 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, with Novo gaining overall share of the diabetes treatment market as a result. The recent Rybelsus launch has the potential to turbo-charge sales as the only GLP-1 product in tablet form.
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 supports operating margins of well over 40%, despite extra investment in new releases. The group's balance sheet is in a good position too, with a sizeable net cash position.
It's not all smooth sailing though.
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 acute medicines. With health systems likely to emerge from the current crisis with budgets severely stretched, that trend is only likely to continue. That would be especially concerning given the shares are now trading a touch above their long-term average on a price to earnings ratio.
We continue to think Novo offers something distinctive. Pharmaceutical companies with a strong balance sheet and a defensive market. But the stocks valuation has been rising recently, pushing down the prospective dividend yield, even as the pressures mount. It may not be as attractive an investment as it once was.
Novo Nordisk key facts
- Price/Earnings ratio: 29.5
- 10 year average Price/Earnings ratio:20.9
- 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 Exchange Rates)
Insulin sales in the half reached DKK28.0bn, up 1% at constant exchange rates. That reflects growth in all regions other than the US, where revenues fell 11% on lower prices and increased rebates.
GLP-1 treatments saw sales rise 30% to DKK23.4bn, reflecting strong growth in Rybelsus and Ozempic. The category continues to gain share of global diabetes treatment, with Novo gaining share within the category.
Sales of Obesity treatments Saxenda and Wegovy rose 34% to DKK3.5bn. Bio Pharm reported sales growth of 7% reaching DKK10.0bn - reflecting growth in treatments for rare blood and endocrine disorders.
Novo reported free cash of DKK32.7bn, up 8% year-on-year despite a 7% increase in capital expenditure. As a result net cash came in at DKK10.5bn, up from DKK2.4bn.
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.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
Previous Novo-Nordisk A/S updates
The London Stock Exchange does not disclose whether a trade is a buy or a sell so this data is estimated based on the trade price received and the LSE-quoted mid-price at the point the trade is placed. It should only be considered an indication and not a recommendation.
Trades priced above the mid-price at the time the trade is placed are labelled as a buy; those priced below the mid-price are sells; and those priced close to the mid-price or declared late are labelled 'N/A'.