European Healthcare Sector Post-summer … Healthcare Sector Post-summer prescription September 2015 Generally smooth sailing through the recent market correction Buying opportunities:

European Healthcare Sector

Post-summer prescription

September 2015

Generally smooth sailing through the recent market correction

Buying opportunities: Merck KGaA, Gerresheimer, Rhön Klinikum

DR. MARCUS WIEPRECHT

+49-69-78808 221 | [email protected] MARKUS GOLA

+49-69-78808-233 | [email protected]

For important disclosure information please see Appendix section at the end of this report.

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11 SEPTEMBER 2015 3 / 44

For important disclosure information please see Appendix section at the end of this report

SECTOR REPORT

SMOOTH SAILING

Opportunities post the summer correction

Most Preferred Least Preferred

Merck KGaA Drägerwerk

Gerresheimer AG

Rhön Klinikum

Biotest AG

Following the recent market turbulence, we revisit most of our investment

cases in the European Healthcare sector. The sell-off in Merck KGaA looks

overdone in our view, especially in light of the very strong Q2 performance

of its LifeScience division and the even better showing at Sigma Aldrich. We

also like Gerresheimer and Rhön Klinikum at the current levels, while we

switch our preference within the Fresenius family from FRE to FME. We

upgrade Stada to Neutral ahead of the investor day in Russia next week as

the worst appears to be over (for now). Overall, the EU healthcare sector

has outperformed the broader market by 5% during the last two months, but

its relative valuation still offers attractive upside, in our view.

Smooth sailing through the recent market correction Our (non-pharma) MainFirst European healthcare index has outperformed

the broader market by 5% during the recent “summer correction” and by a

notable 35% since 2013. Consequently, the valuation of the healthcare

sector has increased in recent months from a P/E premium of c.30% to

c.42% relative to the broader market P/E. The current premium is still

slightly below the historical average of c.50% and well below the 2006 high

of ~125%. This recent pick-up in relative valuation could suggest that

healthcare might not be the first choice for investors in a potential short-term

recovery scenario. However, longer term we believe that healthcare remains

a safe place to be as the current valuations provide enough upside.

Buying opportunities: Merck KGaA, Gerresheimer, Rhön and Biotest

Merck KGaA shares are down c.25% from their peak and, at a P/E 2016E of

~17x excluding Sigma-Aldrich and ~14x including it, we believe the current

level offers an excellent entry opportunity. Gerresheimer shares have not

followed the recent market sell-off but remain substantially undervalued post

the Centor deal, in our view. Rhön is still a special situation with decent

shareholder returns and hardly any downside, we believe. We also remain

positive on Biotest and believe that a capitulation would be too early.

We upgrade Stada to Neutral ahead of the CMD next week Stada’s Q2 results were reassuring, especially with regard to Russia, and

recent industry trends support a further consolidation among global generics

players, in our view. Next week’s investor day focused on Russia will most

likely be a positive rather than a negative trigger.

Within the Fresenius family, our preference shifts from FRE to FME

Fresenius SE has been one of our top picks in recent years, but following

the ~50% rise in the share price ytd our preference shifts back to FME. In

contrast to the past, FRE’s stub business is no longer a value driver while

our analysis suggests that FME shares offer more upside in the mid-term.

Too early to (re-)enter the Dräger story Despite the >30% share price drop from its April peak, we believe it is still

too early to get excited about Dräger again, for two main reasons: 1) the

recent class I recall in the US for a battery power supply unit and 2)

continuing risks in China for Dräger´s Medical division.

Company Recommendation change Price Target (old)

Merck KGaA Outperform (unchanged) EUR 105 (105)

Fresenius SE Downgrade to Neutral EUR 63 (63)

Fresenius Med. Care Neutral (unchanged) EUR 75 (71)

Biotest Outperform (unchanged) EUR 44 (44)

Gerresheimer AG Outperform (unchanged) EUR 76 (76)

Rhön Klinikum Outperform (unchanged) EUR 30 (30)

Stada AG Upgrade to Neutral EUR 33 (24)

Drägerwerk Neutral (unchanged) EUR 90 (125)

Qiagen Neutral (unchanged) EUR 25 (20)

Straumann Outperform (unchanged) CHF310 (310)

Primary Analyst Secondary Analyst

Dr. Marcus Wieprecht Markus Gola

+49-69-78808 221 +49-69-78808-233

[email protected] [email protected]

European Healthcare, 11 September 2015

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Table of Contents

Bigger picture post the market correction.................................................................... 5 Healthcare outperformed during the recent market correction ..................................... 5 Relative sector valuation still below historical average ................................................. 5

Key takeaways for our universe .................................................................................... 7 Buying opportunities in Merck KGaA, Gerresheimer, Rhön and Biotest .................. 7

We upgrade Stada to Neutral ahead of the CMD next week ................................... 7

Within the Fresenius family, our preference shifts from FRE to FME ...................... 7

Too early to (re-)enter the Dräger story ................................................................... 7

Merck KGaA (MRK GY / MRCG.DE) ............................................................................... 9

Fresenius SE (FRE GY / FREG.DE) .............................................................................. 13

Fresenius Medical Care (FME GY / FMEG.DE) ............................................................ 15

Gerresheimer AG (GXI GY / GXIG.DE) ......................................................................... 17

Rhön Klinikum (RHK GY / RHKG.DE) .......................................................................... 19

Biotest AG (BIO3 GR / BIOG_p.DE) ............................................................................. 21

Stada AG (SAZ GY / STAGn.DE) .................................................................................. 23 This is why we turn less negative, but… .................................................................... 25 Q2 results painted a slightly better picture ................................................................. 25 Recent industry trends support further consolidation… .............................................. 25 …but major risks remain unchanged .......................................................................... 27 Balance sheet risks .................................................................................................... 27 Russian consumer and currency risks ....................................................................... 27 Valuation still attractive, even excluding FX adjustments ........................................... 28

Drägerwerk (DRW3 GR / DRW3.F) ............................................................................... 31

Qiagen (QIA GY / QGENF.DE) ...................................................................................... 33

Straumann (STMN SW / STMN.SW) ............................................................................. 35

Appendix: Regulatory Disclosures and Disclaimer ................................................... 37


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Bigger picture post the market correction

Healthcare outperformed during the recent market correction

The slowdown of emerging market economies and the unexpected currency moves in

China increased fears of a downturn in global GDP, leading to plummeting equities

around the world last month. Chinese equities in particular saw an extraordinary

meltdown. On 4th

September 2015, the Chinese central bank released a statement in

which Mr Zhou, the governor of the central bank, said that “the correction in the stock

market is almost done” and that the situation in China was back under control. Whether

this is in fact the case remains to be seen. In any event, we believe this is a good point in

time to take a closer look at our European healthcare universe and to identify investment

opportunities arising from the recent sell-off.

Our proprietary “MainFirst Healthcare Index”, which includes non-pharma healthcare/

medtech companies, indicates that the recent correction resulted in a further

outperformance of the healthcare sector compared to the broader market. Since 2013,

healthcare has outperformed the broader market by c.35% (around +60% versus circa

+25%) and by 5% in August alone, owing to its more defensive nature and lower

exposure to emerging markets relative to other sectors.

Chart 1: Healthcare sector perf. vs broader market: Long term Chart 2: …Short-term view

Source: FactSet, MainFirst Research Source: FactSet, MainFirst Research

The companies included in our healthcare sector index are: Coloplast A/S Class B,

DiaSorin S.p.A., Elekta AB Class B, Draegerwerk AG & Co. KGaA Pref, Essilor

International SA, Eurofins Scientific Société Européenne, Fagron NV, Fresenius SE &

Co. KGaA, Fresenius Medical Care AG & Co. KGaA, Galenica AG, Gerresheimer AG,

Getinge AB Class B, GN Store Nord A/S, Grifols, S.A. Class A, Korian-Medica SA,

Merck KGaA, Oriola-KD Oyj Class B, Orpea SA, Qiagen NV, Rhön-Klinikum AG, Smith &

Nephew plc, Sonova Holding AG, Sorin S.p.A., Stada Arzneimittel AG, Straumann

Holding AG, Synergy Health plc, Tecan Trading AG, and William Demant Holding A/S.

Relative sector valuation still below historical average

The healthcare sector’s valuation has seen a substantial multiple expansion since 2012,

from c.15x forward P/E to 23x a few months ago. During the recent market correction,

the sector P/E dropped back to c.20x (see following chart). However, the current level is

still below the 30x forward P/E peak seen in 2006, but well above the lows of around 13x

forward P/E hit in 2008. While the sector’s multiple expansion over the last 3.5 years

may look impressive, we would point out that the relative picture looks clearly less

outstanding. Relative to the broader market, the healthcare sector trades at a premium of

~42%, which is still slightly below the long run average (01/2002 – 09/2015) of c.50%

and substantially below the record high of ~125% reached in early 2006.

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015

MainFirst Health Care Index STOXX Europe 600

90

100

110

120

130

140

150

160

170

180

01/13 03/13 05/13 07/13 09/13 11/13 01/14 03/14 05/14 07/14 09/14 11/14 01/15 03/15 05/15 07/15 09/15

MainFirst Health Care Index STOXX Europe 600

Our (non-pharma) European

healthcare index has outperformed

the broader market by 35% since

2013 and by 5% in the recent market

correction since early August

Due to the higher valuation, we focus

on stocks that were unjustifiably hit

by the sell-off or investment cases

not fully recognised by the market


6 / 44

The pick-up in relative valuation in recent months may suggest that in a short-term

recovery scenario, healthcare might not be the first choice for investors. However, longer

term, we believe that the sector is still a very safe place to be and current valuations

provide enough upside to remain positive on the sector.

Chart 3: Historical P/E valuation of European Healthcare Sector

Source: FactSet, MainFirst Research

Chart 4: Historical P/E valuation of Healthcare relative to the broader STOXX Europe 600 index


0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

12m

fo

rwar

d P

E

MainFirst Health Care Index

1

1.25

1.5

1.75

2

2.25

2.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Rel

ativ

e P

/E p

rem

ium

MainFirst Health Care Index/STOXX Europe 600


7 / 44

Key takeaways for our universe

Buying opportunities in Merck KGaA, Gerresheimer, Rhön and Biotest

Merck KGaA shares have dropped c.25% from their peak and at a P/E 2016E of ~17x

excluding Sigma Aldrich and ~14x including the latter, we believe the current level offers

an excellent entry opportunity. Gerresheimer shares have not followed the recent market

sell-off but remain substantially undervalued post the Centor deal, in our view. Rhön is

still a special situation with decent shareholder returns, where we see hardly any

downside. We remain positive on Biotest and believe that a capitulation would be too

early.

We upgrade Stada to Neutral ahead of the CMD next week

Stada’s Q2 results were reassuring, especially with regard to Russia, and recent industry

trends support further consolidation among global generics players. Next week’s investor

day focused on Russia will most likely be a positive rather than a negative trigger.

Within the Fresenius family, our preference shifts from FRE to FME

Fresenius SE has been one of our top picks for the last few years, but following the

~50% rise in the share price ytd our preference shifts back to Fresenius Medical Care. In

contrast to the past, FRE’s stub business is no longer a value driver while our analysis

suggests that FME shares offer more upside in the mid-term.

Too early to (re-)enter the Dräger story

Despite the >30% share price drop from its April peak, we believe it is still too early to

get excited about Dräger again for two main reasons: 1) the recent class I recall in the

US for a battery power supply unit and 2) continuing risks in China for Dräger´s Medical

division.

Table 1: MainFirst healthcare coverage universe

Source: Company accounts, MainFirst Research

Market Cap Rating FX Price Price Up-/down- EV/sales Div. Yield EPS CAGR PEG ´14

EUR bn target side 2015E 2015E 2016E 2015E 2016E 2015E 2013-17E

Biotest 0.8 Outperform EUR 21.2 44 107% 1.9x 20.1x 12.0x 96.5x 23.6x 0.3% 39.2% 1.5

Merck KGaA 36.5 Outperform EUR 84.0 105 25% 3.0x 10.6x 9.9x 17.5x 16.9x 1.2% 4.9% 3.0

Grifols 11.8 Outperform EUR 37.8 48 27% 3.8x 12.7x 11.7x 20.1x 18.3x 1.7% 9.2% 2.3

Rhön Klinikum 1.8 Outperform EUR 24.4 30 23% 1.5x 10.6x 9.7x 22.8x 21.2x 3.3% 17.0% 1.2

Gerresheimer 2.0 Outperform EUR 64.1 76 19% 2.3x 11.5x 9.2x 20.9x 15.3x 1.2% 16.6% 1.0

Sonova 7.4 Outperform CHF 138 155 12% 3.9x 15.1x 13.0x 22.9x 19.4x 1.5% 9.0% 3.0

Straumann 4.3 Outperform CHF 300 310 4% 5.5x 20.4x 17.8x 42.7x 26.4x 1.3% 13.2% 1.9

Fresenius SE 34.9 Neutral EUR 63.4 63 -1% 2.4x 13.8x 12.8x 24.3x 22.1x 0.7% 17.1% 1.1

Drägerwerk 1.3 Neutral EUR 82.6 90 9% 0.7x 7.1x 5.9x 15.3x 12.4x 1.7% 11.1% 1.3

Stada 1.9 Neutral EUR 31.5 33 5% 1.6x 8.4x 8.0x 11.1x 10.4x 2.2% 1.0% 10.9

Qiagen 5.7 Neutral EUR 23.7 25 5% 5.2x 15.4x 13.4x 24.4x 21.8x 0.0% 10.9% 1.8

Fresenius Med. Care 21.9 Neutral EUR 70.4 75 7% 2.0x 10.9x 9.8x 22.4x 18.9x 1.0% 10.6% 1.6

William Demant 3.7 Neutral DKK 556 450 -19% 3.3x 14.8x 13.6x 20.6x 18.8x 0.0% 10.7% 1.9

Galenica 7.5 Underperform CHF 1277 844 -34% 2.3x 18.4x 16.1x 30.5x 27.1x 1.1% 8.0% 2.4

EV/EBITDA P/E


8 / 44

Chart 5: Organic growth rates relative to 2016E P/E valuation


Biotest

Biotest, excl. R&D

Fresenius Med.

Fresenius SE

Galenica

Gerresheimer

Grifols (A-shares)

Grifols (B-shares)

Merck KGaA

Qiagen

Rhön Klinikum

Straumann

William Demant

Rhön, cash adjusted

Sonova

Drägerwerk

Merck KGaA (incl. SIAL)

10

15

20

25

30

0% 2% 4% 6% 8% 10% 12%

adj.

P/E

201

6E

Organic sales growth CAGR (2014 - 2018E)


11 SEPTEMBER 2015 9 / 44


Merck KGaA (MRK GY / MRCG.DE)

Price Target Up / Downside Market Cap. 3M Average DTV

EUR 105 +24.9% EUR 36,561 m EUR 42.0 m

Last Price (10/09/2015) Next Event (12/11/2015) Free Float No. of Shares, dil.

EUR 84.09 Q3/9M Results 29.7% 434.8 m

OUTPERFORM

(MRK GY)

LOOK AT LIFE SCIENCES Merck KGaA shares are down c.25% from the peak reached 5 months ago and thus offer a

good entry point with ~25% upside to our unchanged price target of EUR 105. We consider

the shares attractively valued at a P/E 2016E of ~17x excluding Sigma-Aldrich and ~14x

including the latter on a pro-forma basis. Our Merck KGaA peer group trades at a P/E 2016E

of ~23x, reflecting the very attractive market valuation of Merck´s enlarged Life Sciences

division. We do not share the market´s concerns about Merck’s pharma business, while the

two other divisions, Performance Materials and particularly Life Sciences, show a strong

financial performance that is not reflected in the group’ valuation, in our view.

Q2-15 results recap: overall solid, Life Sciences and Sigma-Aldrich very strong Sigma Aldrich reported very strong 8% y/y organic sales growth in Q2-15 (7% y/y growth in

H1), even better than Merck´s (legacy) Life Sciences division (former Millipore), which

reported 6.2% y/y organic sales growth in Q2 (4.8% y/y growth in H1) – primarily driven by

strong demand in process solution products for small scale biologics production. Divisional

EBITDA growth reached 20.6% y/y in Q2 driven by a good leverage effect. Merck´s

Performance Materials division surprised with another very strong EBITDA margin of 45.9%

in Q2-15, despite a rather flat organic sales performance due to stocking effects among

liquid crystals customers. Merck’s Healthcare division fully compensated for the expected

organic revenue decline for Rebif (-12% y/y in Q2 after -16% y/y in Q1-15), supported by

outstanding double-digit organic growth rates for the Consumer Health division (16% y/y in

Q2 after 13% y/y growth in Q1-15) as well as many older products like Metformin (former

Glucophage, +27% y/y organic growth) and Concor (9% y/y organic growth). The Healthcare

segment’s EBITDA declined marginally by 2.8% y/y in Q2-15 due to higher R&D costs and

fading royalty income, primarily for Humira. In summary, group sales increased organically

by 2.2% y/y (after 1.3% y/y growth in Q1-15) and group EBITDA rose by 6.3% y/y (after

5.7% y/y growth in Q1-15). FY-15 guidance for the group was confirmed while the lower end

of the guidance ranges for Performance Materials and Life Sciences were lifted slightly

following the decent Q2 performance.

Focus on Sigma-Aldrich integration Merck has received all required anti-trust approvals for the SIAL transaction, although the

EU’s green light still depends on some smaller divestments of former SIAL assets. However,

we believe the deal will finally be closed this month or October at the latest. Our analysis

indicates that the deal will add 24% to earnings (assuming 1.85% average financing costs

versus <2% guidance and including the targeted synergies of EUR 260m). With this, we

believe that the underlying pro-forma EPS 2016E is at least EUR 6, putting the shares at a

pro-forma P/E 2016E of <14x, which is far too low in our view.

Dr. Marcus Wieprecht

+49-69-78808 221

[email protected]

Performance vs. Stoxx 600 Europe

KEY FINANCIALS

Source: Company, MainFirst Research

YEAR TO DEC (EUR m) 2014 2015E 2016E 2017E YEAR TO DEC (EUR m) 2014 2015E 2016E 2017E

Group rev enue 11,501 12,619 12,870 13,007 EV/Sales 2.71 2.97 2.79 2.63

Change y /y 3.7% 9.7% 2.0% 1.1% EV/EBITDA (adj.) 9.2 10.7 9.9 9.3

EBITDA (adj.) 3,388 3,523 3,630 3,699 EV/EBIT (adj.) 10.9 12.2 11.4 10.7

Margin 29.5% 27.9% 28.2% 28.4% P/E (adj.) 14.3 17.5 17.0 15.8

EBIT (rep.) 1,762 1,986 2,236 2,285 EV/Capital employ ed 1.74 2.16 2.05 1.94

Margin 15.3% 15.7% 17.4% 17.6% Price/NAV 2.44 2.91 2.57 2.28

EBIT (adj.) 2,847 3,068 3,160 3,209 RoCE (NOPAT) 11.9% 13.4% 13.7% 13.8%

Margin 24.8% 24.3% 24.6% 24.7% Free CF y ield (FCF/MC) 14.4% 6.7% 6.2% 6.3%

EPS (rep.) (EUR) 2.66 2.90 3.35 3.46 Net debt/EBITDA 0.17 - - -

EPS (adj.) (EUR) 4.60 4.81 4.96 5.31 Free Cash Flow 4,121 2,447 2,279 2,312

EPS (cons.) (EUR) 4.63 4.71 4.93 5.19 Market cap (EUR m) 28,674 36,561 36,561 36,561

Difference to consensus -0.6% 2.1% 0.6% 2.3% Net debt (cash) 559 (1,000) (2,635) (4,324)

DPS (EUR) 0.95 1.00 1.05 1.10 Other items 1,879 1,968 1,987 1,997

Div idend y ield 1.4% 1.2% 1.2% 1.3% Enterprise v alue 31,112 37,528 35,912 34,233


11 SEPTEMBER 2015 10 / 44


Key Financials Page

Year to December (EUR m) 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

Profit & Loss Account

Group revenue (All items as reported) 10,276 11,173 11,095 11,501 12,619 12,870 13,007 13,367 13,955

EBITDA 2,736 2,360 3,069 3,123 3,395 3,630 3,699 3,752 3,869

EBIT 1,137 964 1,611 1,762 1,986 2,236 2,285 2,338 2,455

Pre-tax result 851 709 1,389 1,557 1,645 1,936 2,051 2,426 2,567

Income tax , other items (509) (130) (180) (392) (412) (465) (533) (631) (667)

Net result group 342 579 1,209 1,165 1,233 1,472 1,518 1,795 1,899

Minorities, other (12) (12) (7) (8) (12) (14) (15) (16) (17)

Net result shareholders 331 567 1,202 1,158 1,221 1,458 1,502 1,779 1,882

EPS, fully diluted (EUR) 1.52 2.61 2.77 2.66 2.90 3.35 3.46 4.09 4.33

MainFirst adjustments

Ex ceptionals abov e EBITDA 12 (605) (215) (265) (128) - - - -

Acquisition-related amortisation charges (1,169) (921) (766) (820) (954) (924) (924) (924) (924)

Interest charges reported abov e the EBIT line - - 31 - - - - - -

At-equity results reported in net financials - - - - - - - - -

Ex ceptionals below EBIT 3 440 274 242 213 222 116 323 355

Profit & Loss Account (adjusted)

EBITDA 2,724 2,965 3,253 3,388 3,523 3,630 3,699 3,752 3,869

EBIT 2,294 2,490 2,561 2,847 3,068 3,160 3,209 3,262 3,379

Net result, shareholders 1,485 1,653 1,909 2,000 2,090 2,160 2,311 2,380 2,451


Cash Flow Statement

EBITDA 2,736 2,360 3,069 3,123 3,395 3,630 3,699 3,752 3,869

Cash interest and tax (392) (316) (402) (597) (753) (765) (746) (644) (728)

Changes in w orking capital (558) (280) 586 (1,588) (74) (37) (21) (22) (23)

Other operating CF items (819) 690 (878) 3,807 522 113 62 65 407

Net operating cash flow 968 2,453 2,376 4,745 3,090 2,942 2,994 3,151 3,525

Capital ex penditure (intangibles, tangibles) (446) (473) (517) (624) (643) (662) (682) (716) (749)

Free cash flow 522 1,980 1,860 4,121 2,447 2,279 2,312 2,434 2,776

Acquisitions, Disposals, Financial assets 626 73 (15) (1,419) - - - - -

Div idends, minority pay outs (413) (407) (418) (509) (534) (561) (589) (619) (649)

Capital measures, other 265 (87) 193 (2,445) (353) (83) (33) (1,184) (1,503)

Change in net cash/debt 1,000 1,559 1,619 (253) 1,560 1,635 1,689 632 624

Net cash (debt) (3,484) (1,926) (307) (559) 1,000 2,635 4,324 4,956 5,580

Balance Sheet

Fix ed assets 15,723 15,017 13,434 15,530 14,895 14,951 15,058 15,811 16,601

t/o Goodw ill 4,716 4,696 4,583 5,694 5,694 5,694 5,694 5,694 5,694

Current assets 6,397 6,626 7,385 10,480 11,340 11,880 13,626 14,307 15,022

t/o Inv entories 1,691 1,534 1,474 1,660 1,721 1,755 1,774 1,863 1,956

t/o Trade receiv ables 2,328 2,115 2,021 2,236 2,453 2,502 2,528 2,655 2,788

t/o Cash and equiv alents 2,055 2,528 3,391 5,078 5,562 5,997 7,686 8,486 9,286

Group equity 10,493 10,415 11,069 11,801 12,619 14,309 16,105 16,910 17,755

t/o Shareholders' equity 10,447 10,361 11,020 11,742 12,560 14,250 16,045 16,851 17,696

Interest-bearing liabilities 5,539 4,454 3,698 5,637 4,561 3,361 3,361 3,529 3,706

Other liabilties and prov isions 6,087 6,775 6,052 8,572 9,054 9,160 9,218 9,679 10,163

t/o Trade liabilities 1,101 1,288 1,364 1,539 1,689 1,723 1,741 1,828 1,919

Balance sheet total 22,120 21,643 20,819 26,010 26,235 26,831 28,684 30,118 31,624

Net w orking capital 2,919 2,360 2,132 2,356 2,485 2,534 2,561 2,689 2,824

Capital employ ed (incl. Goodw ill) 18,642 17,377 15,566 17,886 17,379 17,485 17,619 18,500 19,425

Ratios

Rev enue, y /y 10.6% 8.7% -0.7% 3.7% 9.7% 2.0% 1.1% 2.8% 4.4%

EBITDA margin (adj.) 26.5% 26.5% 29.3% 29.5% 27.9% 28.2% 28.4% 28.1% 27.7%

EBIT margin (adj.) 22.3% 22.3% 23.1% 24.8% 24.3% 24.6% 24.7% 24.4% 24.2%

EPS (adj.), y /y 0.9% 12.1% 15.2% 4.8% 4.6% 3.1% 7.1% 3.0% 3.1%

Net w orking capital intensity (as a % of sales) 28.4% 21.1% 19.2% 20.5% 19.7% 19.7% 19.7% 20.1% 20.2%

DSOs (trade receiv ables as day s of rev s) 83 69 66 71 71 71 71 72 73

Inv entories as a % of rev enue 16.5% 13.7% 13.3% 14.4% 13.6% 13.6% 13.6% 13.9% 14.0%

Net debt (cash) / EBITDA (adj.) 1.3 0.6 0.1 0.2 (0.3) (0.7) (1.2) (1.3) (1.4)

EBITDA (adj.) / Capex 6.1 6.3 6.3 5.4 5.5 5.5 5.4 5.2 5.2

Free CF y ield (FCF / market cap) 7.1% 21.1% 7.3% 14.4% 6.7% 6.2% 6.3% 6.7% 7.6%

Oper. FCF y ield ([FCF - net int. tax ed] / EV) 5.4% 16.9% 7.4% 13.6% 7.1% 6.8% 7.0% 6.8% 7.9%


11 / 44

Table 2: Merck KGaA peer group valuation


Peer Group Valuation (P/E) Peer Group Valuation (EV/EBITDA)

Company Weight 2015E 2016E 2017E Company Weight 2015E 2016E 2017E

Pharma (40%) Pharma (40%)

Novartis AG 0.05 18.4 18.4 18.4 Novartis AG 0.05 15.7 15.3 13.9

Roche 0.05 18.5 18.5 18.5 Roche 0.05 11.9 11.0 10.1

Bayer AG 0.05 17.0 17.0 17.0 Bayer AG 0.05 11.5 10.3 9.3

Lonza Group AG 0.05 19.7 19.7 19.7 Lonza Group AG 0.05 11.3 10.1 9.0

UCB 0.05 36.0 36.0 36.0 UCB 0.05 19.9 17.4 14.5

Sanofi 0.05 15.4 15.4 15.4 Sanofi 0.05 9.9 9.4 8.7

Novo Nordisk 0.05 27.9 27.9 27.9 Novo Nordisk 0.05 18.2 17.3 15.7

Actelion 0.05 25.1 25.1 25.1 Actelion 0.05 19.4 19.3 16.4

0.40

Performance Materials/Life Sciences (60%) Performance Materials/Life Sciences (60%)

Thermo Fisher Scientific 0.05 16.4 14.7 13.3 Thermo Fisher Scientific 0.05 14.4 12.9 11.8

Pall Corp (acquired by Danaher in Aug 2015) 0.05 33.4 30.5 27.1 Pall Corp (acquired by Danaher in Aug 2015) 0.05 20.7 20.7 20.7

Croda 0.05 20.7 19.5 18.4 Croda 0.05 13.1 12.3 11.8

Givaudan 0.05 23.2 21.8 20.6 Givaudan 0.05 15.0 14.2 13.4

Novozymes 0.05 31.0 27.2 24.5 Novozymes 0.05 18.4 17.0 15.6

Symrise 0.05 23.4 21.6 19.8 Symrise 0.05 13.6 12.5 11.5

Agilent Technologies 0.05 20.5 17.8 15.7 Agilent Technologies 0.05 13.1 11.5 10.5

Bruker Corp 0.05 23.6 20.4 17.5 Bruker Corp 0.05 12.1 10.8 9.4

Waters 0.05 20.5 18.7 17.0 Waters 0.05 13.9 12.6 11.3

Biorad 0.05 38.8 33.3 25.2 Biorad 0.05 12.6 11.7 11.5

Qiagen 0.05 23.4 23.4 23.4 Qiagen 0.05 16.0 16.0 16.0

Sartorius Stedim 0.05 36.8 31.0 26.8 Sartorius Stedim 0.05 19.9 17.3 15.1

0.60

Weighted average 24.5 22.9 21.4 Weighted average 15.0 14.0 12.8

Current prem (disc) -29% -26% -26% Current prem (disc) -30% -27% -22%

Fair premium (disc) -10% -10% -10% Fair premium (disc) -10% -10% -10%

Fair price 105.6 100.5 100.4 Fair price 113.3 110.8 106.3

Weight 40% 30% 30% Weight 40% 30% 30%

Price target 102.5 Price target 110.5

Merck KGaA 2015E 2016E 2017E

P/E 17.3 17.0 15.9

EV/Sales 2.9 2.9 2.8

EV/EBITDA 10.5 10.2 10.0

EV/EBIT 12.1 11.7 11.5

Merck KGaA 2015E 2016E 2017E

EPS 4.79 4.88 5.22

Sales (m) 12,665 12,940 13,080

EBITDA (m) 3,533 3,646 3,718

EBIT (m) 3,078 3,176 3,225


12 / 44

Table 3: Merck KGaA Q2-15 results (EUR m)


Table 4: Merck KGaA organic growth trends by division and by region

Source: Company accounts

Q2 2015

reported

Q2 2015

cons

FY 2014A

(restated)

FY 2015 guidance

(excluding SIAL)

FY 2015

MF est

change

yoy

consensus

(Vara)

Healthcare

Sales 1,803 1,761 6,620 organically stable 7,059 7% 6,967

adj. EBITDA 480 488 2,000 1.9bn to 2.0bn 1,916 -4% 1,940

Erbitux sales 233 231 904 908 0% 916

Rebif sales 461 454 1,840 1,781 -3% 1,781

Performance Materials

Sales 643 639 2,060 slight organic growth 2,545 24% 2,532

adj. EBITDA 295 284 895 1.06bn to 1.1bn 1,138 27% 1,106

Life Sciences

Sales 773 748 2,682 moderate organic growth 3,061 14% 2,946

adj. EBITDA 200 191 659 EUR 740m to 760m 779 18% 759

Merck group

Sales 3,220 3,147 11,363 EUR 12.3bn to 12.5bn 12,665 11% 12,409

adj. EBITDA 899 884 3,388 3.45bn to 3.55bn 3,513 4% 3,506

adj. EPS 1.30 1.19 4.60 4.60-4.80 4.78 4% 4.71

Sales by region,

organic growth yoy

Q1 2013 Q2 2013 Q3 2013 Q4 2013 % of

group

Q1 2014 Q2 2014 Q3 2014 Q4 2014 % of

group

Q1 2015 Q2 2015 % of

group

North America 5.6% 4.9% -1.3% -6.0% 19% 2.6% -3.3% 1.5% 6.8% 19% -3.5% -1.2% 20%

Europe 1.0% 0.2% 1.1% 4.0% 37% 1.7% 0.5% 1.4% -2.7% 34% -3.0% -0.7% 31%

Emerging Markets 11.5% 4.9% 11.5% 10.0% 36% 5.6% 11.1% 9.1% 10.8% 39%

RoW -2.4% 6.4% 5.7% 6.0% 8% 7.8% 0.5% 6.7% 5.2% 8%

Asia-Pacific 5.2% 3.1% 33%

Latin America 19.9% 12.5% 12%

Middle East & Africa -5.5% 8.2% 4%

Group 5.0% 3.3% 4.7% 3.9% 100% 3.7% 3.4% 4.6% 4.4% 100% 1.3% 2.2% 100%

Sales by segment

Merck Serono 4.9% 2.1% 5.2% 4.0% 56% 4.2% 3.0% 4.5% 2.8% 50% 50%

Consumer Health 9.3% -1.0% 14.6% 0.0% 4% 5.7% 8.5% 1.4% 6.5% 7% 7%

New Healthcare 0.3% 1.5%

Performance Materials 9.9% 5.4% -1.8% -1.0% 15% 1.1% 1.8% 7.0% 6.9% 19% 1.6% -0.4% 19%

Life Science 3.6% 5.6% 5.9% 7.0% 25% 3.7% 4.0% 4.5% 5.9% 24% 3.4% 6.2% 24%

Group 5.0% 3.3% 4.7% 3.9% 100% 3.7% 3.4% 4.6% 4.4% 100% 1.3% 2.2% 100%

EBITDA by segment

Merck Serono 14.8% 9.2% 7.7% -1.0% 57% 0.1% -5.0% -3.8% 3.6% 52%

Consumer Health 52.6% 3.9% 25.4% -25.0% 2% 5.0% 17.0% -15.5% -3.1% 4%

New Healthcare -3.8% -2.8% 50%

Performance Materials 27.0% 8.4% -0.2% -12.0% 23% -10.1% 8.0% 23.5% 43.6% 26% 48.4% 30.5% 30%

Life Science -2.5% 1.9% 3.4% 17.0% 18% 4.8% 6.0% 2.4% -3.0% 18% 8.5% 20.6% 20%

Group 18.8% 10.7% 10.1% 0.7% 100% 0.7% 2.0% 3.1% 10.5% 100% 5.7% 6.3% 100%


13 / 44

Fresenius SE (FRE GY / FREG.DE)


EUR 63 -0.9% EUR 34,686 m EUR 31.8 m

Last Price (10/09/2015) Next Event (n/a) Free Float No. of Shares, dil.

EUR 63.56 71.0% 543.0 m

NEUTRAL

(FRE GY)

VALUE DRIVER STUBBED OUT Fresenius SE has been one of our top picks in the healthcare sector for some time and

investors have benefited from an outstanding ~50% rise in the shares ytd – despite the

recent market correction. We continue to regard Fresenius SE as a very well-managed,

defensive and diversified company and the recent inclusion in the Euro Stoxx-50 index is

clear proof of this tremendous success. However, at a P/E 2016E of >22x and considering

the recent outperformance of the shares, we see little room to increase our PT further. While

the stub business (excluding FME) was attractively valued in the past it represents no value

driver for the group anymore in our view with a 23x PE 2016E, above the entire group (22x).

Success, success, success… Momentum for all three larger divisions remains strong, especially for the largest, Kabi. Kabi

in fact was the key driver of the two guidance increases so far this year and now expects 6%

to 8% organic sales growth and an EBIT margin of 19% to 20%, close to its all-time-high of

20.6% reported in 2012. Group net income is now seen at 18% to 21% at constant FX

growth for FY-15, with favourable currency trends probably adding another 10-11% points to

reported growth this year.

Visibility on Kabi´s North American business remains limited

Although it is the major swing factor for the entire Kabi division, near-term visibility on Kabi´s

North American business remains relatively low. Drug shortages are still an issue and Kabi

has benefitted from this trend in recent years. Since 2010, the resulting tailwinds for Kabi

have tended to last longer than initially thought and history could well repeat itself, but again,

visibility remains low.

Valuation Fresenius trades close to our EUR 63 PT. This puts the shares on a target P/E 2016E of

22x, which we consider fair as it is in line with our peer group comprising names like DaVita,

Sagent, Hikma, Hospira and Générale de Santé. The stub business (i.e. excluding Fresenius

Medical Care) was attractively valued in the past, but today it is actually trading slightly

above FRE group multiples, implying that Fresenius Medical Care may take over the role of

the future value driver for the group.


+49-69-78808 221

[email protected]


KEY FINANCIALS






Margin 17.6% 17.7% 18.2% 18.4% P/E (adj.) 19.0 24.4 22.1 19.6


Margin 13.6% 14.3% 14.9% 15.1% Price/NAV 2.21 3.43 3.08 2.76



EPS (rep.) (EUR) 2.01 2.61 2.87 3.24 Net debt/EBITDA 3.49 3.07 2.80 2.47

EPS (adj.) (EUR) 2.01 2.61 2.87 3.24 Free Cash Flow 2,472 942 1,774 1,930


Difference to consensus -0.5% 8.3% 3.2% 4.2% Net debt (cash) 14,279 15,365 15,350 14,722

DPS (EUR) 0.44 0.47 0.50 0.52 Other items 18,419 19,383 20,338 21,345



14 / 44

Key Financials Page




EBITDA 3,237 3,759 3,834 4,095 5,007 5,477 5,956 6,725 7,388

EBIT 2,563 2,983 2,991 3,158 4,037 4,487 4,916 5,192 5,599

Pre-tax result 1,932 2,391 2,407 2,556 3,376 3,797 4,262 4,588 5,126

Income tax , other items (604) (659) (669) (725) (1,013) (1,139) (1,279) (1,376) (1,538)

Net result group 1,328 1,732 1,738 1,831 2,363 2,658 2,983 3,212 3,588

Minorities, other (638) (806) (727) (745) (946) (1,092) (1,208) (1,257) (1,307)

Net result shareholders 690 926 1,011 1,086 1,417 1,566 1,775 1,955 2,281



Ex ceptionals abov e EBITDA - (92) (54) - - - - - -

Acquisition-related amortisation charges - - - - - - - - -

Interest charges reported abov e the EBIT line - - - - - - - - -


Ex ceptionals below EBIT (80) 80 14 - - - - - -


EBITDA 3,237 3,851 3,888 4,095 5,007 5,477 5,956 6,725 7,388

EBIT 2,563 3,075 3,045 3,158 4,037 4,487 4,916 5,192 5,599

Net result, shareholders 770 938 1,051 1,086 1,417 1,566 1,775 1,955 2,281


Cash Flow Statement

EBITDA 3,237 3,759 3,834 4,095 5,007 5,477 5,956 6,725 7,388

Cash interest and tax (1,135) (1,325) (1,253) (1,327) (1,673) (1,829) (1,933) (1,980) (2,011)

Changes in w orking capital (735) (498) (233) 477 (1,218) (452) (572) (601) (631)

Other operating CF items (45) 369 (327) 550 238 82 102 28 (187)

Net operating cash flow 1,322 2,305 2,022 3,795 2,354 3,278 3,553 4,172 4,559

Capital ex penditure (intangibles, tangibles) (783) (970) (1,047) (1,323) (1,412) (1,505) (1,623) (1,704) (1,789)

Free cash flow 539 1,335 975 2,472 942 1,774 1,930 2,468 2,771

Acquisitions, Disposals, Financial assets (772) (2,500) (2,556) (2,028) (1,500) (1,000) (500) (250) (250)


Capital measures, other 3 632 275 (2,201) 95 (92) (89) (154) (169)

Change in net cash/debt (595) (979) (1,797) (2,339) (1,086) 15 628 1,316 1,565

Net cash (debt) (9,164) (10,143) (11,940) (14,279) (15,365) (15,350) (14,722) (13,406) (11,841)

Balance Sheet

Fix ed assets 19,170 22,551 24,606 31,547 33,488 35,003 36,086 37,890 39,784

t/o Goodw ill 12,669 15,014 14,211 19,314 19,284 19,254 19,224 20,185 21,194

Current assets 7,151 8,113 8,153 8,351 10,212 11,284 11,616 12,616 13,696

t/o Inv entories 1,717 1,840 2,014 2,333 2,836 3,022 3,259 3,422 3,593


t/o Cash and equiv alents 635 885 864 1,175 1,535 2,050 1,678 2,478 2,978

Group equity 10,894 13,156 14,181 16,164 17,382 19,066 20,979 22,447 24,018




t/o Trade liabilities 807 961 885 1,052 1,279 1,363 1,470 1,543 1,620




Ratios

Rev enue, y /y 3.4% 16.8% 5.4% 14.3% 21.5% 6.6% 7.8% 8.5% 8.6%


EBIT margin (adj.) 15.5% 15.9% 15.0% 13.6% 14.3% 14.9% 15.1% 14.7% 14.6%

EPS (adj.), y /y 15.9% 14.6% -64.0% 3.1% 29.9% 10.0% 12.9% 9.6% 16.1%




Net debt (cash) / EBITDA (adj.) 2.8 2.6 3.1 3.5 3.1 2.8 2.5 2.0 1.6

EBITDA (adj.) / Capex 4.1 4.0 3.7 3.1 3.5 3.6 3.7 3.9 4.1




15 / 44

Fresenius Medical Care (FME GY / FMEG.DE)


EUR 75 +6.5% EUR 21,733 m EUR 70.4 m


EUR 70.41 Q3/9M Results 69.0% 308.1 m

NEUTRAL

(FME GY)

PREFERENCE SHIFTING FROM FRE TO FME We slightly increase our PT, by EUR 4 per share or 5%, to EUR 75 (implying a target P/E

2016E of 20x) but keep our Neutral recommendation for Fresenius Medical Care. FME

shares have lost c.15% from their peak, far more than its parent FRE, which has dipped just

c.4% from its high. Ytd, FME shares are still up by around 13% (versus c.50% for FRE

shares), which is slightly better than the broader Dax-30 performance of around +5% ytd. As

discussions on reimbursement cuts in the US seem to be off the agenda for the time being,

FME can focus on its global efficiency program, integrating recent acquisitions in the US and

the patient switch to Mircera.

Mircera deal is clearly positive for 2016 earnings The recent supply agreement for Roche’s Mircera in the US through FME’s JV with Galenica

is clearly positive for FME from 2016 onwards. Mircera is a long-acting EPO and the first

cheaper EPO alternative for dialysis providers in the US, ahead of first EPO biosimilars,

which are expected to come to the US market from 2016 onwards. We estimate that FME

will be able to save an extra ~USD 100m in costs (Mircera costs ~25% less, 50% of patients

switched, on a total estimated USD 750m EPO bill for FME´s US clinics) on top of the

targeted USD 300m cost savings from its Global Efficiency Program launched early last

year. However, these estimated Mircera cost savings are already included in FME’s FY-16

guidance for 15% to 20% net income growth following more muted growth in FY-15. Roche´s

production capacity for Mircera is somewhat limited, implying that Mircera will primarily be

used only in FME’s own dialysis clinics (37% market share in the US).

Japanese dialysis service market opening up: big numbers, difficult to consolidate While the story has been around for many years already, there seems to be some progress

now in Japan as foreign companies are now allowed to run dialysis clinics. The Japanese

market offers a huge opportunity for global dialysis players given the large numbers of

patients (c.326,000, 13% of global dialysis patients) with very high reimbursement levels,

creating a USD 20bn market opportunity. The downside, however, is that around 85% of the

market is highly fragmented (i.e. independent clinics), making it very difficult for any global

dialysis player to consolidate its position.

New CMS/government reimbursement discussions unlikely in the next few years While reimbursement discussions are a regular occurrence in the US every few years

(especially when certain costs like those for renal drugs are plunging), FME does not see

any new discussions coming up until the end of this decade. However, once cheaper renal

drugs like Mircera or EPO biosimilars have been on the market for a few years, a new

discussion on dialysis reimbursement for Medicare patients is foreseeable.


+49-69-78808 221

[email protected]


KEY FINANCIALS


YEAR TO DEC (USD m) 2014 2015E 2016E 2017E YEAR TO DEC (USD m) 2014 2015E 2016E 2017E




Margin 18.7% 18.4% 19.1% 19.3% P/E (adj.) 16.9 22.6 19.0 16.9


Margin 14.2% 13.9% 14.8% 15.0% Price/NAV 1.79 2.37 2.27 2.16



EPS (rep.) (USD) 3.46 3.52 4.18 4.69 Net debt/EBITDA 2.89 2.80 2.47 2.17

EPS (adj.) (USD) 3.46 3.52 4.18 4.69 Free Cash Flow 929 974 1,178 1,141

EPS (cons.) (USD) 3.48 3.74 4.27 4.70 Market cap (USD m) 17,978 24,393 24,515 24,637

Difference to consensus -0.6% -5.9% -2.1% -0.2% Net debt (cash) 8,563 8,846 8,807 8,511

DPS (USD) 0.78 0.80 0.85 0.90 Other items 1,279 1,444 1,603 1,772



16 / 44

Key Financials Page

Year to December (USD m) 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E



EBITDA 2,632 2,822 2,904 2,954 3,149 3,546 3,912 4,258 4,700

EBIT 2,075 2,219 2,256 2,255 2,391 2,746 3,057 3,216 3,515

Pre-tax result 1,778 1,932 1,847 1,844 1,980 2,328 2,594 2,794 3,098

Income tax , other items (601) (605) (592) (584) (655) (780) (869) (950) (1,053)

Net result group 1,177 1,327 1,255 1,260 1,325 1,548 1,725 1,844 2,045


Net result shareholders 1,071 1,187 1,110 1,045 1,072 1,282 1,446 1,551 1,737

EPS, fully diluted (USD) 3.54 3.89 3.61 3.46 3.52 4.18 4.69 4.99 5.56


Ex ceptionals abov e EBITDA - (98) - - - - - - -


Interest charges reported abov e the EBIT line (12) (13) (13) (14) (15) (15) (16) (17) (18)


Ex ceptionals below EBIT - 168 - - - - - - -


EBITDA 2,644 2,932 2,917 2,968 3,163 3,561 3,928 4,274 4,717

EBIT 2,087 2,329 2,269 2,269 2,406 2,761 3,073 3,232 3,533

Net result, shareholders 1,071 1,117 1,110 1,045 1,072 1,282 1,446 1,551 1,737


Cash Flow Statement

EBITDA 2,632 2,822 2,904 2,954 3,149 3,546 3,912 4,258 4,700

Cash interest and tax (898) (1,031) (1,001) (995) (1,066) (1,198) (1,332) (1,371) (1,470)

Changes in w orking capital (507) (103) 478 (154) (309) (300) (496) (520) (546)

Other operating CF items 219 353 (346) 57 62 60 74 4 (105)

Net operating cash flow 1,446 2,039 2,035 1,861 1,835 2,109 2,159 2,370 2,578

Capital ex penditure (intangibles, tangibles) (598) (675) (748) (932) (861) (930) (1,018) (1,133) (1,260)

Free cash flow 849 1,364 1,287 929 974 1,178 1,141 1,237 1,318

Acquisitions, Disposals, Financial assets (1,748) (1,606) (458) (1,758) (1,000) (820) (500) (500) (515)


Capital measures, other (217) (343) (562) 212 75 38 37 188 (140)

Change in net cash/debt (1,397) (856) (24) (929) (284) 39 296 525 243

Net cash (debt) (6,754) (7,610) (7,634) (8,563) (8,846) (8,807) (8,511) (7,986) (7,744)

Balance Sheet

Fix ed assets 13,838 16,199 16,716 18,644 19,047 19,477 19,640 20,053 20,475

t/o Goodw ill 9,187 11,422 11,697 13,204 13,504 13,804 13,804 13,804 13,804

Current assets 5,695 6,127 6,405 6,803 7,526 8,433 9,310 9,916 10,516

t/o Inv entories 968 1,037 1,098 1,189 1,294 1,398 1,530 1,576 1,623


t/o Cash and equiv alents 457 688 783 969 1,186 1,725 2,021 2,425 2,668

Group equity 8,472 9,731 11,187 10,853 11,267 11,898 12,680 13,480 14,280




t/o Trade liabilities 653 746 598 648 705 762 834 875 919




Ratios

Rev enue, y /y 6.0% 7.8% 6.1% 8.4% 8.8% 8.1% 9.5% 11.2% 11.3%


EBIT margin (adj.) 16.3% 16.9% 15.5% 14.3% 14.0% 14.8% 15.1% 14.3% 14.0%

EPS (adj.), y /y 8.6% 3.4% -1.4% -4.2% 1.7% 18.8% 12.2% 6.4% 11.4%





EBITDA (adj.) / Capex 4.4 4.3 3.9 3.2 3.7 3.8 3.9 3.8 3.7




17 / 44

Gerresheimer AG (GXI GY / GXIG.DE)


EUR 76 +19.3% EUR 2,000 m EUR 6.4 m


EUR 63.71 100.0% 31.4 m

OUTPERFORM

(GXI GY)

SHARES ~20% UNDERVALUED POST THE CENTOR DEAL Gerresheimer shares sailed smoothly through the stormy markets last month, having lost

~6% since the peak of EUR 68 reached shortly after the Centor acquisition at the end of

July. We believe this deal is not yet fully reflected in Gerresheimer´s valuation as Centor fits

strategically as well as financially for shareholders, adding a high-margin US-based plastics

business and thus improving group margins substantially. Having sold a more capex-

intensive glass business earlier this year (Tubing Glass to Corning) and replacing those

assets with far less capex-intensive ones (Centor), the group’s cash flows and return ratios

should improve. We reiterate our OPF recommendation and EUR 76 PT.

What we like: Centor is a strong player in a high-margin niche market According to Gerresheimer’s management, the attractions of the Centor business are: 1) it is

a market leader with a >50% share of a niche pharmacy supply market with historically very

stable revenue growth and margin trends; 2) 85% of Centor’s group sales are generated by

the two key flagship products “1-Clic” and “Screw.Loc”, which are widely known by patients

in the US; 3) 54 of the top 60 retailers are exclusively supplied by Centor in the US; 4)

Centor is expected to grow at least in line with the US prescription retail market, which is

forecast to grow by more than 2% until 2019 (IMS estimates); 5) Centor’s business metrics

are similar to the GXI plastics business, with contracts lasting for 2-3 years, including some

price escalation clauses so that rising raw material costs can be passed on to customers; 6)

the Centor products account for less than 0.1% of total pharmacy revenues, i.e. a small

portion; and 7) EBITDA margins are currently around 44%, with a very high cash conversion

rate (41% for GXI standalone, 48% for GXI plus Centor).

A low risk deal in our view In view of the above, the risks entailed by this deal seem fairly low. Neither is there any

integration risk as the acquired business is a pure add-on to GXI´s plastics business,

bringing a completely new sales channel (i.e. to pharmacies). According to CEO Röhrhoff,

Centor’s management has an outstanding track record in delivering on financial targets and

he sees no reason for this to change. Furthermore, the financing of the deal is locked in with

bridge financing of up to 18 months in place.

Valuation While we would not argue for a substantial multiple expansion for GXI shares following the

Centor deal, we consider a target 2016E P/E of 18x fair using our pro-forma EPS estimates

forming the basis for our EUR 76 price target. Our healthcare/packaging peer group trades

at a weighted 2016/2017 P/E of 20x and 18x, respectively, implying some incremental

upside in a blue-sky scenario.


+49-69-78808 221

[email protected]


KEY FINANCIALS


YEAR TO NOV (EUR m) 2014 2015E 2016E 2017E YEAR TO NOV (EUR m) 2014 2015E 2016E 2017E


Change y /y 1.9% 5.4% -0.8% 5.1% EV/EBITDA (adj.) 8.8 11.4 9.2 8.5

EBITDA (adj.) 253 273 334 352 EV/EBIT (adj.) 15.1 19.5 13.9 12.5

Margin 19.6% 20.1% 24.8% 24.8% P/E (adj.) 17.1 20.8 15.2 13.9

EBIT (rep.) 130 160 221 239 EV/Capital employ ed 1.56 1.61 1.53 1.45

Margin 10.1% 11.8% 16.4% 16.9% Price/NAV 2.85 3.29 2.79 2.38

EBIT (adj.) 148 160 221 239 RoCE (NOPAT) 7.6% 5.8% 7.6% 8.0%

Margin 11.5% 11.8% 16.4% 16.9% Free CF y ield (FCF/MC) 3.3% -0.7% 4.3% 5.0%


EPS (adj.) (EUR) 2.89 3.07 4.19 4.60 Free Cash Flow 51 (15) 85 100


Difference to consensus 2.1% 0.7% 22.5% 18.9% Net debt (cash) 442 879 820 743

DPS (EUR) 0.75 0.79 0.83 0.87 Other items 245 243 242 241



18 / 44

Key Financials Page

Year to November (EUR m) 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E



EBITDA 210 230 241 235 273 334 352 371 329

EBIT 109 129 133 130 160 221 239 253 198

Pre-tax result 73 99 99 99 130 183 192 210 169


Net result group 54 69 68 73 91 126 129 144 118


Net result shareholders 51 63 62 66 84 119 122 136 109



Ex ceptionals abov e EBITDA (7) (8) (1) (19) - - - - -

Acquisition-related amortisation charges (21) (19) (38) - - - - - -



Ex ceptionals below EBIT (3) 9 4 (7) (13) (13) (23) (21) (10)


EBITDA 217 237 242 253 273 334 352 371 329

EBIT 137 155 172 148 160 221 239 253 198

Net result, shareholders 81 80 97 91 97 132 145 157 119


Cash Flow Statement

EBITDA 210 230 241 235 273 334 352 371 329


Changes in w orking capital (5) 8 (30) (32) (88) (26) (13) (14) (14)

Other operating CF items (6) 11 17 30 (1) 4 (1) (1) (1)

Net operating cash flow 144 187 164 176 115 217 239 257 234


Free cash flow 58 68 45 51 (15) 85 100 119 88

Acquisitions, Disposals, Financial assets (78) (32) (52) - (914) - - - -


Capital measures, other (20) (22) (33) (39) 512 (5) (1) (15) 37

Change in net cash/debt (56) (3) (58) (7) (437) 59 77 80 100

Net cash (debt) (374) (377) (435) (442) (879) (820) (743) (663) (563)

Balance Sheet

Fix ed assets 1,036 1,073 1,129 1,154 1,567 1,590 1,621 1,653 1,686

t/o Goodw ill 419 428 456 455 655 655 655 655 655

Current assets 479 485 487 502 694 810 915 1,050 1,155

t/o Inv entories 160 189 195 194 254 281 295 301 307

t/o Trade receiv ables 163 179 193 209 250 277 290 296 302

t/o Cash and equiv alents 131 86 73 68 157 216 293 373 473

Group equity 552 580 563 604 673 786 912 1,060 1,180

t/o Shareholders' equity 512 535 506 543 609 717 839 985 1,100

Interest-bearing liabilities 505 463 508 510 1,036 1,036 1,036 1,036 1,036

Other liabilties and prov isions 458 515 544 541 551 578 588 607 626



Net w orking capital 204 214 260 277 372 412 432 439 446


Ratios

Rev enue, y /y 6.8% 11.4% 3.8% 1.9% 5.4% -0.8% 5.1% 5.3% 5.0%


EBIT margin (adj.) 12.5% 12.7% 13.6% 11.5% 11.8% 16.4% 16.9% 17.0% 12.7%

EPS (adj.), y /y 25.1% 4.5% 14.5% -1.0% 6.2% 36.5% 9.8% 8.5% -23.8%





EBITDA (adj.) / Capex 2.5 2.0 2.0 2.0 2.1 2.5 2.5 2.7 2.3

Free CF y ield (FCF / market cap) 5.8% 6.0% 3.3% 3.3% -0.7% 4.3% 5.0% 5.9% 4.4%



19 / 44

Rhön Klinikum (RHK GY / RHKG.DE)


EUR 30 +22.3% EUR 1,802 m EUR 12.3 m


EUR 24.53 87.5% 73.5 m

OUTPERFORM

(RHK GY)

DECENT RETURNS, LIMITED DOWNSIDE

Although Rhön shares have slipped by ~8% from the peak reached at the end of May, they

are still up by ~3% ytd, so the overall volatility of the shares remains very low. We continue

to like the Rhön investment case for the following reasons: 1) strong shareholder return

potential (higher dividend payout ratio and further share buybacks); 2) a massively

underestimated underlying, fully-leveraged earnings potential implying >20% upside for the

shares mid-term with hardly any downside risk; and 3) a still valid M&A story with larger

shareholders likely to take control within the next five years, in our view. We retain our

Outperform rating and EUR 30 price target.

EUR 511m net cash position leaves multiple options Rhön currently has EUR 511m net cash on its balance sheet (as per June 2015), giving the

company multiple options for decent shareholder returns. Around EUR 180m will be used for

another c.10% share buyback starting Sept 11 and ending Oct 8 while c.EUR 200m will be

used to expand capacity in Bad Neustadt (we estimate a c.17% capacity expansion), Rhön’s

most profitable (>20% EBITDA margin) but oldest hospital. The remaining c.EUR 100m net

cash could be leveraged up to around EUR 500m (implying 2-3x net debt/EBITDA) for future

acquisitions in the German specialised hospital market.

Rhön unlikely to remain independent in 5 years in our view We continue to believe that Rhön will not remain independent mid-term, given that the

founder and current head of the supervisory board Eugen Münch will have to leave the

supervisory board at the age of 75 at the latest (he is now 70). This should pave the way for

other larger shareholders (like Asklepios/Dr. gr. Broermann, who owns 15.25% today and/or

B. Braun, who currently holds 18%) to gradually take over control, in our view. Even Sana

(non-listed German hospital chain) has expressed interest in some Rhön assets.

Valuation: Underlying P/E is very attractive ~13x Optically, Rhön shares may appear fully valued at a P/E 2016E of ~21x. However, we

believe that the underlying EPS potential for Rhön is at least 50% higher than our 2016E

EPS of EUR 1.15. More share buybacks already this year and a better leveraging of the

strong net cash position via earnings-accretive acquisitions as well as the planned capacity

expansion in Bad Neustadt should lead to a further EPS expansion, which we and

consensus have not yet built into our models. We calculate an underlying mid-term EPS

potential of around EUR 1.80, taking the underlying P/E of Rhön shares today to just ~13x.

Our price target of EUR 30 implies a target P/E of ~16.5x, which we still consider

conservative.


+49-69-78808 221

[email protected]


KEY FINANCIALS




Change y /y -49.9% -27.1% 3.7% 3.7% EV/EBITDA (adj.) 0.8 10.7 9.8 8.9

EBITDA (adj.) 1,414 151 160 168 EV/EBIT (adj.) 0.9 17.7 15.6 14.2

Margin 93.6% 13.7% 14.0% 14.2% P/E (adj.) 1.4 22.9 21.3 20.8

EBIT (rep.) 1,331 91 100 105 EV/Capital employ ed 1.26 1.62 1.58 1.55

Margin 88.1% 8.3% 8.8% 8.9% Price/NAV 1.39 1.43 1.38 1.33

EBIT (adj.) 1,331 91 100 105 RoCE (NOPAT) 138.0% 8.3% 8.8% 9.1%

Margin 88.1% 8.3% 8.8% 8.9% Free CF y ield (FCF/MC) -1.7% -0.1% 4.9% 6.0%

EPS (rep.) (EUR) 16.68 1.07 1.15 1.18 Net debt/EBITDA - - - -

EPS (adj.) (EUR) 16.68 1.07 1.15 1.18 Free Cash Flow (29) (2) 89 109


Difference to consensus 0.0% 0.9% -2.5% -8.5% Net debt (cash) (538) (212) (262) (329)




20 / 44

Key Financials Page




EBITDA 354 292 275 1,414 151 160 168 174 180

EBIT 212 147 155 1,331 91 100 105 116 119

Pre-tax result 184 112 118 1,248 89 100 106 118 121


Net result group 161 92 90 1,228 81 87 89 98 101

Minorities, other (5) (3) (3) (2) (3) - - - -

Net result shareholders 156 89 87 1,226 78 87 89 98 101



Ex ceptionals abov e EBITDA - (12) - - - - - - -




Ex ceptionals below EBIT - 2 - - - 3 3 3 3


EBITDA 354 304 275 1,414 151 160 168 174 180

EBIT 212 159 155 1,331 91 100 105 116 119

Net result, shareholders 156 99 87 1,226 78 85 86 95 98


Cash Flow Statement

EBITDA 354 292 275 1,414 151 160 168 174 180


Changes in w orking capital (43) (199) 27 (1,635) (13) (11) (11) (11) (12)

Other operating CF items (40) 12 (27) 374 (75) 8 9 6 9



Free cash flow (35) (123) 102 (29) (2) 89 109 109 115

Acquisitions, Disposals, Financial assets (21) (50) - - - - - - -


Capital measures, other 98 - 1,919 (565) (264) 22 20 (9) (10)

Change in net cash/debt (11) (229) 1,985 (630) (326) 50 67 35 37

Net cash (debt) (588) (817) 1,168 538 212 262 329 364 401

Balance Sheet

Fix ed assets 2,246 2,393 887 847 870 859 831 873 916

t/o Goodw ill 299 324 100 100 100 100 100 105 110

Current assets 929 908 2,211 958 963 1,031 1,116 1,227 1,348

t/o Inv entories 50 55 21 22 20 21 21 22 23


t/o Cash and equiv alents 478 372 2,005 695 365 415 482 527 573

Group equity 1,599 1,726 1,667 1,249 1,285 1,331 1,377 1,501 1,636


Interest-bearing liabilities 1,065 1,189 837 157 153 153 153 162 172





Capital employ ed (incl. Goodw ill) 2,519 2,730 995 948 994 988 965 1,008 1,054

Ratios

Rev enue, y /y 3.0% 9.0% 5.2% -49.9% -27.1% 3.7% 3.7% 3.0% 3.0%


EBIT margin (adj.) 8.1% 5.6% 5.2% 88.1% 8.3% 8.8% 8.9% 9.5% 9.5%

EPS (adj.), y /y 11.9% -36.3% -12.5% n/m -93.6% 7.5% 2.6% 9.3% 3.1%




Net debt (cash) / EBITDA (adj.) 1.7 2.7 (4.2) (0.4) (1.4) (1.6) (2.0) (2.1) (2.2)

EBITDA (adj.) / Capex 1.4 1.8 2.5 18.0 2.7 2.9 4.1 4.1 4.1

Free CF y ield (FCF / market cap) -1.6% -5.4% 4.2% -1.7% -0.1% 4.9% 6.0% 6.1% 6.4%

Oper. FCF y ield ([FCF - net int. tax ed] / EV) -0.3% -3.0% 10.1% 4.4% -0.0% 5.7% 7.2% 7.4% 7.9%


21 / 44

Biotest AG (BIO3 GR / BIOG_p.DE)


EUR 44 +112.8% EUR 818 m EUR 0.2 m


EUR 20.68 Q3/9M Results 63.0% 39.6 m

OUTPERFORM

(BIO3 GR)

TOO SOON TO GIVE UP Biotest shares are down >40% from the peak reached in May 2015, which is clearly a result

of massive investor frustration following the failure of BT-61. Investors appear to have given

up on the stock. However, growth prospects in the core plasma business remain fully intact

in our view, while BT-62 and Civacir are still potentially game-changing upside options for

the group. We reiterate our Outperform recommendation and EUR 44 price target as we

believe the market has over-reacted following the negative BT-61 news last April. Our DCF

value for the core plasma business is EUR 40 per share, while our risk-adjusted NPV for BT-

62 adds EUR 4 per share (using probabilities of between 10% and 15%).

Capacity expansion moderately impacting global prices Like all other plasma players, Biotest is currently expanding its plasma fractionation and

purification capacities in order to meet the anticipated future global demand for IVIG. The

massive capacity expansion of basically all global plasma players raised concerns among

investors that prices may collapse. Biotest sees average global price pressure for the key

plasma product IVIG at around 2% y/y for this year, mainly driven by Europe ex-Germany. In

Germany and the higher margin US market, prices for IVIG are fairly stable. Given the

unchanged underlying global demand for plasma products (7% CAGR for the largest product

IVIG, 4-5% CAGR for Albumin and 2% CAGR for factor VIII), we believe that prices will

stabilise from 2016 onwards again.

H1-15 results wrap-up: Decent top line, weak margins Biotest reported 8.9% y/y sales growth in H1-15, driven by a strong performance in Germany

(19% y/y growth, 21% of group sales), the US (+66% y/y, 22% of group) and Asia-Pacific

(+72% y/y, 7% of group). Price pressure and FX tailwinds (mainly Russia) caused a 14% y/y

decline in Europe ex Germany (29% of group) while sales in the Middle East dropped by

12% y/y (19% of group). Bivigam sales in the US are ramping up and reached USD 25m in

H1-15, with Biotest confirming its FY-15 target of USD 60m sales and then USD 100m from

2017/18 onwards. However, competition in the high-margin US market remains tough and

these targets will certainly not be reached easily.

Timelines for key pipeline products confirmed Biotest confirmed that it expects phase II clinical data for BT-62 in malignant myeloma and

final pivotal data for Civacir (prevention of hepatitis C infection after liver transplantation)

both at end-2015. Depending on the clinical results, peak sales for BT-62 could range

anywhere between a low three-digit EUR m and >EUR 1bn figure while Biotest expects peak

sales for Civacir in the range of EUR 200-400m. Final phase III data for Civacir will be

presented at a scientific conference in San Francisco on 13-17 November 2015.


+49-69-78808 221

[email protected]


KEY FINANCIALS



Group rev enue 582 606 671 742 EV/Sales 2.34 1.90 1.81 1.64



Margin 14.8% 9.6% 15.3% 17.5% P/E (adj.) 60.0 94.0 23.0 15.9


Margin 9.2% 3.5% 9.2% 11.3% Price/NAV 2.36 1.72 1.61 1.49


Margin 9.2% 3.5% 9.2% 11.3% Free CF y ield (FCF/MC) -10.2% -11.0% -7.6% 0.4%


EPS (adj.) (EUR) 1.43 0.22 0.90 1.30 Free Cash Flow (116) (90) (62) 3

EPS (cons.) (EUR) 0.48 0.47 0.91 1.13 Market cap (EUR m) 1,132 818 818 818

Difference to consensus 197.9% -53.2% -1.1% 15.0% Net debt (cash) 153 252 317 323




22 / 44

Key Financials Page



Group revenue (All items as reported) 422 440 501 582 606 671 742 823 916

EBITDA 72 76 86 86 58 103 130 162 193

EBIT 42 45 54 53 21 62 84 111 138

Pre-tax result 29 36 48 47 13 52 74 101 128


Net result group 19 23 32 19 9 36 52 71 89

Minorities, other (2) - - - - - - - -




Ex ceptionals abov e EBITDA - - - - - - - - -




Ex ceptionals below EBIT - - - - - - - - -


EBITDA 72 76 86 86 58 103 130 162 193

EBIT 42 45 54 53 21 62 84 111 138



Cash Flow Statement

EBITDA 72 76 86 86 58 103 130 162 193


Changes in w orking capital 13 (9) (78) (77) (8) (41) (43) (56) (63)

Other operating CF items 10 (10) 8 14 6 6 6 6 6

Net operating cash flow 72 35 (7) (11) 44 41 60 71 87


Free cash flow 45 - (50) (116) (90) (62) 3 8 22

Acquisitions, Disposals, Financial assets 49 5 10 1 - - - - -


Capital measures, other - 1 74 (3) (1) - - - -

Change in net cash/debt 87 1 28 (125) (100) (65) (6) (4) 4

Net cash (debt) (56) (55) (27) (153) (252) (317) (323) (327) (323)

Balance Sheet

Fix ed assets 305 301 306 340 436 498 509 521 531

t/o Goodw ill - - - - - - - - -

Current assets 378 381 581 693 595 571 607 659 727

t/o Inv entories 153 184 227 246 248 275 304 338 375



Group equity 347 369 461 480 477 508 548 603 673

t/o Shareholders' equity 347 369 461 480 477 508 548 603 672

Interest-bearing liabilities 139 112 232 332 332 332 332 332 332



Balance sheet total 683 682 887 1,033 1,031 1,069 1,116 1,180 1,258


Capital employ ed (incl. Goodw ill) 544 534 600 712 808 904 950 1,010 1,076

Ratios

Rev enue, y /y 2.3% 4.3% 13.8% 16.2% 4.1% 10.8% 10.5% 11.0% 11.2%


EBIT margin (adj.) 9.8% 10.1% 10.7% 9.2% 3.5% 9.2% 11.3% 13.5% 15.0%

EPS (adj.), y /y -1.4% 34.7% 30.9% -43.7% -84.6% n/m 44.4% 36.9% 26.4%





EBITDA (adj.) / Capex 2.6 2.2 2.0 0.8 0.4 1.0 2.3 2.6 2.9

Free CF y ield (FCF / market cap) 9.1% 0.0% -7.0% -10.2% -11.0% -7.6% 0.4% 1.0% 2.6%

Oper. FCF y ield ([FCF - net int. tax ed] / EV) 9.0% 1.0% -5.6% -8.3% -7.3% -4.5% 0.8% 1.3% 2.3%


23 / 44

Stada AG (SAZ GY / STAGn.DE)


EUR 33 +5.5% EUR 1,891 m EUR 18.8 m


EUR 31.29 Q3/9M Results 100.0% 60.4 m

NEUTRAL

(SAZ GY)

LIMITED DOWNSIDE – UPGRADE TO NEUTRAL We upgrade Stada from UPF to Neutral and increase our PT to EUR 33 per share from

EUR 24. Q2 results were reassuring with regard to Russia and recent industry trends

suggest that further consolidation could be on the horizon in global generics. On the other

hand, our analysis indicates that major risks still prevail: 1) balance sheet risks; and 2)

uncertainty about the behaviour of Russian consumers and the rouble. At a P/E 2016E of

~11x, Stada shares are still trading at a substantial discount to its peers of c.20%. The

upcoming investor day focused on Russia will most likely be a positive rather than a negative

trigger, in our view.

Q2 results reassuring, recent industry trends support further consolidation H1-15 results showed an expected improvement at group level with c.8% organic sales

growth after a relatively weak start to the year with a 3.7% organic sales decline in Q1-15.

The key swing factor was Russia (~15% of group sales), Stada’s former key growth and high

margin market, which recovered from a very weak 24% organic y/y decline in Q1 to just -1%

y/y for H1-15. As for the broader picture, we note continuous structural pressure for generics

companies to join forces given the simple fact that their customers are also consolidating,

with the buying power of wholesalers and pharmacies increasing massively in Europe as

well as in the US.

Major risks remain unchanged in our view: balance sheet and Russia We see two main risks in Stada’s balance sheet: 1) intangible assets, which amount to 50%

of total assets and are a source of recurring write-downs and impairment charges almost

every quarter; and 2) a relatively high net debt position of c.EUR 1.4bn (~3.5x net

debt/EBITDA) giving the company little leeway for further acquisitions without a capital

increase, in our view. Furthermore, we believe that visibility on the behaviour of Russian

consumers and the performance of the rouble remains relatively low.

Valuation still attractive, even excluding FX adjustments Stada is trading at a non-FX adjusted P/E 2016E of ~11x, which is optically quite low (c. 20%

discount to peers). However, we would argue that Stada deserves some discount to its peers

given the aforementioned risks and the fact that it has fewer growth opportunities in its

generics business relative to peers (e.g. biosimilars, specialty generics). On the other hand,

we believe that the downside to Stada’s shares is limited due to potential M&A scenarios in

which Stada could be worth up to EUR 50 per share (assuming 1.2x EV/Sales for Stada’s

generics business and 3.5x EV/Sales for the higher margin branded products business).


+49-69-78808 221

[email protected]


KEY FINANCIALS






Margin 20.9% 19.4% 19.3% 19.1% P/E (adj.) 10.4 11.1 10.3 9.9


Margin 9.2% 11.7% 11.9% 12.1% Price/NAV 2.33 2.10 1.92 1.74




EPS (adj.) (EUR) 3.08 2.83 3.04 3.17 Free Cash Flow 17 129 147 163


Difference to consensus 0.0% 0.0% -1.3% -5.7% Net debt (cash) 1,590 1,541 1,473 1,382




24 / 44

Key Financials Page




EBITDA 223 324 383 419 390 399 408 418 425

EBIT 121 206 252 190 250 263 279 305 327

Pre-tax result 70 136 189 125 184 203 222 250 271


Net result group 22 87 123 70 138 153 166 187 203

Minorities, other - (1) (1) (6) (6) (7) (7) (8) (9)




Ex ceptionals abov e EBITDA (114) (44) (32) (13) (23) (26) (32) (25) (15)

Acquisition-related amortisation charges (24) (20) (23) (119) (15) (18) (15) - -



Ex ceptionals below EBIT 13 3 16 11 (1) 6 14 - -


EBITDA 337 367 415 432 413 425 440 443 440

EBIT 259 270 307 322 288 307 326 330 342



Cash Flow Statement

EBITDA 223 324 383 419 390 399 408 418 425


Changes in w orking capital (201) (215) (242) (76) (66) (57) (47) (42) (57)

Other operating CF items 238 198 162 (1) 18 10 (1) (7) (10)



Free cash flow 66 76 122 17 129 147 163 173 158

Acquisitions, Disposals, Financial assets (84) (332) (230) (55) (40) (40) (40) (30) (30)


Capital measures, other (130) 7 (17) 72 3 7 15 15 16

Change in net cash/debt (170) (271) (157) (9) 49 68 91 107 92

Net cash (debt) (1,153) (1,424) (1,581) (1,590) (1,541) (1,473) (1,382) (1,275) (1,184)

Balance Sheet

Fix ed assets 1,505 1,756 2,009 1,964 1,909 1,858 1,815 1,789 1,778

t/o Goodw ill 319 456 458 372 366 362 361 360 362

Current assets 1,295 1,226 1,404 1,371 1,495 1,647 1,838 2,038 2,228

t/o Inv entories 399 475 524 499 529 560 594 630 668



Group equity 864 912 1,010 903 970 1,052 1,155 1,285 1,432

t/o Shareholders' equity 854 901 955 836 902 985 1,088 1,218 1,364







Ratios

Rev enue, y /y 5.5% 7.1% 9.1% 2.9% 3.4% 3.6% 4.4% 4.2% 4.1%


EBIT margin (adj.) 15.1% 14.7% 15.3% 15.6% 13.5% 13.9% 14.2% 13.7% 13.7%

EPS (adj.), y /y 9.7% 0.4% 6.0% 16.2% -8.1% 7.4% 4.3% 6.6% 2.4%





EBITDA (adj.) / Capex 3.3 2.7 5.1 2.1 4.9 5.0 5.1 5.1 5.1




25 / 44

This is why we turn less negative, but…

Q2 results painted a slightly better picture

Stada made a relatively weak start to the year 2015 with a Q1 organic group revenue

decline of 3.7% y/y, primarily driven by a 24% y/y drop in revenues in Stada’s former key

growth and high-margin market Russia (~15% of group sales in FY-15E). H1 results

showed an improvement at group level, turning the negative 3.7% organic sales growth

into a positive 2.4% growth for the first six months, implying a decent c.8% y/y organic

sales growth in Q2-15. Russian sales recovered in Q2-15 with an organic y/y decline of

just 1% for H1-15, implying good double-digit organic growth in Q2. Stada’s

management confirmed its FY-15 target of 15% to 20% organic revenue growth for

Russia, implying strong double-digit organic growth in H2-15 of around 30% y/y. This is

all price-driven and further supported by some de-stocking tailwinds for Stada among

Russian wholesalers that is expected to continue in H2-15. However, we were surprised

to hear in the conference call that the profitability in Russia in H1-15 was slightly below

the group average, as this market historically has always been substantially above

Stada’s group profitability. The rouble’s weakness obviously has some transactional

effects on Stada’s P&L, as some raw materials are invoiced in USD.

The German generics market also continues to improve despite a still tough competitive

environment (c.14% of group sales). Stada’s local German generics sales (excluding

export sales out of Germany) rose by 9.4% y/y in H1-15, while Branded Product sales

declined by 3.3% y/y. Overall, we conclude that Stada´s strategy of focusing on just one

company (ALIUD Pharma) taking part in the highly competitive tenders with public health

insurers is paying off and that earnings in the German generics market are picking up

slightly (albeit still below Stada’s group profitability levels).

Other larger countries show a mixed picture for Stada, with France, Belgium and

Switzerland (combined 13.5% of group sales) reporting organic revenue declines of

10%, 5% and 8%, respectively. The reasons for this are the usual suspects, such as

regulatory interventions, inventory shifts and a highly competitive pricing environment.

The UK, on the other hand, was a bright spot for Stada in H1-15, with 12% y/y organic

sales growth driven by a strong performance of its recent larger acquisition Thornton &

Ross, which we regard as one of the more successful acquisitions conducted by Stada

(which does not necessarily apply to other larger acquisitions like the Swiss Spirig and

parts of the Grünenthal portfolio).

H1-15 adjusted EBITDA was down 9% y/y (even after adjusting for the negative FX

effects) and adjusted net profit fell by 6% y/y. The EBITDA margins for the two key

divisions came in below FY-14 margins: Branded Products’ H1-15 margins were 28.2%

(after 30.3% in FY-14) and generics margins were 18.1% (after 18.8% in FY-14).

However, Stada’s management confirmed its FY-15 guidance of a “substantial decrease

y/y in adjusted EBITDA and adjusted net profit” while it continues to expect slight organic

sales growth for FY-15 (was +2.4% y/y in H1-15).

Recent industry trends support further consolidation…

We continue to believe that Stada is not an immediate takeover candidate and our

reasons for this view have not changed: 1) intangible assets account for 50% of Stada’s

total balance sheet and are a recurring source of write-downs and impairment charges

(which Stada adjusts for); and 2) management’s apparent reluctance to sell the

company. However, we note the continuous structural pressure for generics companies

to join forces given the simple fact that their customers are also consolidating, increasing

the buying power of wholesalers and pharmacies massively. Teva recently indicated in a

presentation that in the US the market share of its top three customers increased from

52% in 2009 to 83% in 2013. In Europe this trend is less marked but, still, the market


26 / 44

share of Teva’s top three customers also increased from 51% to 60% during the same

period (see chart 6 below). M&A has picked up in the generics space in the last few

years, with Teva buying Allergan generics (the former Actavis generics business, quite

comparable to Stada’s generics business) at the end of July 2015 for 1.56x EV/Sales.

Mylan is in the process of acquiring Perrigo (currently trading at 4.9x EV/Sales) and

Perrigo itself has just bought the Belgian Omega Pharma for EUR 3.6bn or c.2.8x

EV/Sales. In a smaller transaction, Perrigo bought a portfolio of OTC brands from

GlaxoSmithKline for c.2.0x EV/Sales. Despite the recent M&A deals, we believe that

several generics companies like the Indian Sun Pharmaceuticals still have a decent

appetite for more deals, including companies in Europe.

Chart 6: Recent industry trends for generics players

Source: Teva Pharmaceuticals

In a very simple back-of-the-envelope calculation, we would value Stada’s generics

business at 1.2x EV/Sales and the more attractive and far higher margin Branded

Products business at 3.5x EV/Sales. From this we derive an equity value for Stada of

EUR 49 per share, implying c.60% upside to the current market price (see table 5

below).


27 / 44

Table 5: Stada M&A valuation scenario (EUR m)

Source: MainFirst Research

…but major risks remain unchanged

Balance sheet risks

We see two main risks in Stada’s balance sheet: 1) Intangible assets amount to

EUR 1.7bn, representing almost 50% of total assets. These intangible assets are a

source of recurring write-downs and impairment charges almost every quarter, which

Stada obviously adjusts for. The majority of these assets are classified as other, non-

goodwill intangible assets stemming from trademarks, customer relationships, regulatory

drug approvals, licenses and other rights. Goodwill accounts for just EUR 391m as per

end of June 2015 or 23% of all intangible assets. 2) The second risk we see in Stada’s

balance sheet is the relatively high net debt position of EUR 1393m, leaving little room in

our view for further acquisitions (~3.5x net debt/EBITDA FY-15E). With average annual

free cash flow pre-acquisitions in recent years of ~EUR 100m, it would take Stada

around four years to lower its leverage ratio from the current ~3.5x to ~2.5x. For any

larger deal a capital increase cannot be ruled out, in our view.

Russian consumer and currency risks

In our view, the behaviour of Stada’s Russian consumers is still relatively uncertain.

Overall GDP expectations remain fairly muted with a current estimate of minus 3.7% for

this year (see chart 7 below) and the consumer confidence index is accordingly low,

although it improved in Q2-15 to minus 23 from minus 32 in Q1-15 – still substantially

below 2014 average levels of minus 5-10. Healthcare products are certainly less

exposed than other product categories (like cars, etc.), but it could just be a question of

time until Russian consumers start spending less on these kind of products as well.

Stada currently expects the Russian healthcare product market to grow by 12%,

primarily driven by prices (i.e. slightly below the current inflation rate in Russia). This

means, on the other hand, that there is hardly any volume growth in the Russian

healthcare market now.

The FX risk is even more difficult to grasp in our view given the high volatility versus the

EUR and USD (Stada pays for some raw materials for its Russian pharma production in

USD, creating some visible FX transaction exposure on top of the obvious translation

exposure). In the H1-15 call, Stada’s management mentioned that especially the month

December is highly critical for the full-year FX impact on group earnings and this was

actually the main problem in FY-14, when the rouble lost a great deal of ground versus

the EUR, especially towards the end of the year. The current levels are somewhat below

the peak levels seen at the end of 2014, but given the recent volatility, we regard the

EUR/RUB exchange rate as the most critical factor for Stada’s FY-15 financial

performance, although unfortunately there is very little visibility from today’s perspective

(see chart 9 below).

FY-15E EV multiple EV value

Generics sales 1249 1.2 1,499

Branded product sales 841 3.5 2,943

Total 4,442

Implied equity value 3,049

Implied per share value 49

Current share price 31

Upside M&A scenario 60%


28 / 44

Chart 7: Russia GDP forecast Chart 8: Russia consumer confidence

Source: Bloomberg Source: Bloomberg

Chart 9: EUR/RUB exchange rate trend

Source: Bloomberg

Valuation still attractive, even excluding FX adjustments

Stada does not only adjust for various cash and non-cash items like impairment charges,

but also for FX effects, which we would not adjust for, at least when valuing the

company. Stada guides for adjusted net income of at least EUR 160m for FY-15, which

compares to our estimate of EUR 171m (including FX adjustments). However, if we add

back the negative FX effects (mainly from the rouble), we calculate adjusted net income

of EUR 151m (adjusted for all cash and non-cash items like Stada does, except the

currency effects). This translates into adjusted EPS of EUR 2.42 for FY-15 (-12% y/y).

The corresponding P/E 2015E of 12.6x still compares favourably to a P/E of ~17.5x for

our peer group. We feel that a discount of 20% is fair for Stada given the aforementioned

risks and Stada’s far lower exposure relative to our peer group to higher growth, higher

margin specialty generics (like biosimilars or specially delivered drugs). With this, we

derive a price target of EUR 33 per share (see table below).


29 / 44

Table 6: Stada peer group valuation


Peer Group Valuation (P/E) Peer Group Valuation (EV/EBITDA)

Company Weight 2015 2016 2017 Company Weight 2015 2016 2017

Dr. Reddy's Laboratories Ltd. 0.05 25.9 21.7 18.7 Dr. Reddy's Laboratories Ltd. 0.05 16.9 14.2 12.1

Sun Pharmaceuticals 0.05 36.0 23.8 19.9 Sun Pharmaceuticals 0.05 22.8 15.9 12.8

Teva Pharmaceutical Industries Ltd. 0.25 12.0 11.6 11.0 Teva Pharmaceutical Industries Ltd. 0.25 11.3 11.4 10.3

Gedeon Richter Nyrt. 0.20 18.9 14.4 12.8 Gedeon Richter Nyrt. 0.20 8.9 7.4 6.6

Allergan 0.15 16.9 15.2 13.1 Allergan 0.15 16.3 12.6 10.0

Mylan Inc. 0.20 11.4 10.2 9.4 Mylan Inc. 0.20 10.3 8.5 7.4

Meda AB 0.05 27.1 20.1 13.3 Meda AB 0.05 11.2 9.7 8.9

Perrigo 0.05 28.5 20.1 18.1 Perrigo 0.05 23.5 15.0 13.7

Weighted average 1.00 17.5 14.4 12.6 Weighted average 1.00 12.8 10.6 9.3

Current prem (disc) -28% -24% -22% Current prem (disc) -36% -27% -21%

Fair premium (disc) -20% -20% -20% Fair premium (disc) -20% -20% -20%

Fair price 33.8 32.1 31.1 Fair price 38.1 33.4 30.8

Weight 40% 30% 30% Weight 40% 30% 30%

Price target (implied) 32.5 Price target (implied) 34.5

Stada (non-FX adjusted) 2015 2016 2017

P/E 12.6 10.9 9.9

EV/Sales 1.5 1.5 1.4

EV/EBITDA 8.2 7.8 7.3

EV/EBIT 12.0 10.9 9.9

Stada (non-FX adjusted) 2015 2016 2017

EPS 2.42 2.79 3.08

Sales (m) 2,131 2,209 2,306

EBITDA (m) 393 415 440

EBIT (m) 268 295 326

Table 7: Stada divisional model (EUR m)


2007 2008 2009 2010 2011 2012 2013 2014 H1 15 2015E 2016E 2017E 2018E 2019E 2020E

Generics Sales 1154.4 1154.5 1115.6 1124.2 1188.3 1213.1 1228.0 1218.0 615.3 1249.0 1288.3 1331.8 1374.3 1416.5 1460.2

% of group 74% 70% 71% 69% 69% 66% 61% 59% 60% 59% 58% 58% 57% 57% 56%

EBIT 206.2 136.7 156.3 145.9 84.9 138.1 165.5 176.9 87.0 174.9 173.9 173.1 178.7 188.4 189.8

margin (%) 17.9% 11.8% 14.0% 13.0% 7.1% 11.4% 13.5% 14.5% 14.1% 14.0% 13.5% 13.0% 13.0% 13.3% 13.0%

% of group EBIT 80% 72% 68% 64% 49% 53% 49% 48% 50% 49% 47% 45% 44% 44% 43%

Branded Sales 304.0 368.9 392.6 425.0 471.9 596.2 704.4 800.5 389.3 840.8 878.9 932.7 986.3 1042.0 1096.6

% of group 19% 22% 25% 26% 28% 32% 35% 39% 38% 39% 40% 40% 41% 42% 42%

EBIT 50.9 53.8 74.9 83.7 89.3 123.7 173.5 192.9 88.0 185.0 197.8 214.5 226.8 239.7 252.2

margin (%) 16.7% 14.6% 19.1% 19.7% 18.9% 20.7% 24.6% 24.1% 22.6% 22.0% 22.5% 23.0% 23.0% 23.0% 23.0%

% of group EBIT 20% 28% 32% 36% 51% 47% 51% 52% 50% 51% 53% 55% 56% 56% 57%

Others Sales 112.1 122.7 60.6 77.8 55.2 28.3 71.6 43.7 21.3 41.3 41.6 41.8 42.0 42.2 42.4

% of group 7% 7% 4% 5% 3% 2% 4% 2% 2% 2% 2% 2% 2% 2% 2%

EBIT -41.6 -14.1 -39.2 -67.8 -54.1 -59.6 -31.9 -47.4 -36.0 -72.0 -66.9 -62.0 -64.9 -68.5 -70.7

Group Sales 1570.5 1646.2 1568.8 1626.6 1715.4 1837.5 2004.0 2062.2 1025.9 2131.1 2208.8 2306.3 2402.6 2500.7 2599.2

EBIT 215.5 176.5 191.9 239.6 258.7 270.0 307.1 322.4 139.0 287.9 304.8 325.6 340.6 359.6 371.3

margin (%) 13.7% 10.7% 12.2% 14.7% 15.1% 14.7% 15.3% 15.6% 13.5% 13.5% 13.8% 14.1% 14.2% 14.4% 14.3%


30 / 44

Table 8: Stada P&L


[EURm] 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Sales 1,569 1,627 1,715 1,838 2,004 2,062 2,131 2,209 2,306 2,403 2,501 2,599

Generics 1,116 1,124 1,188 1,213 1,228 1,218 1,249 1,288 1,332 1,374 1,417 1,460

Branded products 393 425 472 596 704 801 841 879 933 986 1,042 1,097

Cost of sales -845 -863 -889 -932 -1,025 -1,070 -1,108 -1,149 -1,199 -1,249 -1,300 -1,352

Gross profit 723 764 827 906 979 992 1,023 1,060 1,107 1,153 1,200 1,248

Distribution expenses -346 -375 -390 -445 -488 -458 -490 -506 -526 -536 -550 -572

General and administrative expenses -123 -125 -140 -158 -160 -153 -170 -177 -185 -192 -200 -208

Research & development costs -47 -55 -50 -52 -55 -57 -64 -66 -69 -72 -75 -78

Other operating income (net) -16 -47 -126 -49 -28 -135 -50 -50 -50 -50 -50 -50

Operating Profit 192 161 120 202 248 189 248 261 277 303 325 340

Operating profit - Generics (adj.) 156 146 85 138 166 177 175 174 173 179 188 190

Operating profit - Branded products (adj.) 75 84 89 124 174 193 185 198 215 227 240 252

Associates & Inv. Income 0.5 0.3 1.1 3.8 4.1 1.7 1.8 1.8 1.9 2.0 2.0 2.1

EBIT reported 192 162 121 206 252 190 250 263 279 305 327 342

EBIT (Stada adjustments) 192 161 120 202 248 322 288 305 326 341 360 371

D&A 88 107 102 118 131 229 140 136 129 113 98 97

EBITDA reported 280 268 223 324 383 419 390 399 408 418 425 439

D&A -88 -107 -102 -118 -131 -229 -140 -136 -129 -113 -98 -97

Interest income 11 4 11 4 7 5 5 8 8 9 9 9

Interest charges -62 -57 -62 -74 -70 -70 -71 -68 -66 -64 -65 -65

Interest income (net) -51 -53 -52 -70 -63 -65 -66 -60 -58 -55 -56 -56

EBT 142 109 70 136 189 125 184 203 222 250 271 286

Income taxes -41 -40 -47 -49 -66 -55 -46 -51 -55 -62 -68 -72

Net Income from continuing operations 101 68 22 87 123 70 138 153 166 187 203 215

Minority interests -0.3 -0.1 -0.3 -0.5 -1.4 -5.5 -6.1 -6.7 -7.4 -8.1 -8.9 -9.8

Net income after minorities 100.4 68.1 22.0 86.5 121.3 64.6 132.0 145.8 158.9 179.2 194.3 204.7

Number of shares 58.8 58.7 58.9 59.2 60.4 60.4 62.3 62.3 62.3 62.3 62.3 62.3

EPS Reported (IFRS) 1.71 1.16 0.37 1.46 2.01 1.07 2.12 2.34 2.55 2.87 3.12 3.28

Exceptionals in EBIT (incl. D&A) 18 77 137.5 64.1 54.8 132.1 55.0 47.0 35.0 25.0 15.0 10

.. Except. (in D&A) 11 30 24 20.5 23.1 59.2 20.0 18.0 15.0 0.0 0.0 0

.. Except. (in GW amortisation) 0 0 0 0.0 0.0 59.8

.. Except. (in Net financials) 3.1 -0.3 -1 0.7 -3.4 -3.6 -10.0 -5.0 -1.0

.. Other except. (pre-tax) 0 0 0 0.0 0.0

.. Except. (in Income taxes) -6 -12 -12 -3.5 -12.2 -6.8 -6.0 -4.0 -1.0

Exceptionals in Minorities 0 0 0 0.0 0.0

Operating profit, adj. - Generics 159 182 183 172 166 177 175 174 173 179 188 190

Operating profit, adj. - Branded products 80 101 109 143 174 193 185 198 215 227 240 252

FX adjustment after tax 21 20 10 0 0 0 0

Impairment & others 111 35 10 35 25 15 10

Adj. EBIT - STADA 210.8 239.2 258.7 270.0 307.2 322.4 287.9 304.8 325.6 340.6 359.6 371.3

Adj. EBIT - MF 281.4 267.9 294.8 325.6 340.6 359.6 371.3

Adj. EBITDA - STADA 287.5 315.5 337.2 367.4 414.9 431.9 412.9 425.0 439.7 453.4 457.8 468.3

Adj. EBITDA - MF 411.2 392.9 415.0 439.7 453.4 457.8 468.3

Adj. EBT - STADA 163.0 185.8 205.8 200.5 240.6 253.1 229.1 245.3 255.7 274.7 285.9 296.1

Adj. Net Income after minorities 115.8 132.9 146.6 147.9 160.5 186.2 171.0 183.8 191.9 204.2 209.3 214.7

EPS adj. (STADA definition) 1.97 2.27 2.49 2.50 2.65 3.08 2.74 2.95 3.08 3.28 3.36 3.44

EPS adj. (MF definition) 2.30 2.30 2.31 2.74 2.42 2.79 3.08 3.28 3.36 3.44

DPS 0.55 0.37 0.37 0.50 0.66 0.76 0.69 0.74 0.77 0.82 0.84 0.86


31 / 44

Drägerwerk (DRW3 GR / DRW3.F)


EUR 90 +7.6% EUR 1,345 m EUR 2.1 m


EUR 83.62 Q3/9M Results 59.0% 17.8 m

NEUTRAL

(DRW3 GR)

TOO EARLY TO (RE-)ENTER THE STORY We keep our Neutral recommendation despite the recent sharp share price decline and

adjust our PT to EUR 90 per share from EUR 125. Dräger shares have lost >30% from the

peak reached in April but are broadly flat ytd. We believe it is still too early to re-enter this

very interesting long-term investment case due to concerns about 1) the recent class I recall

in the US for a battery power supply unit associated with Dräger´s ventilation products and 2)

continuing risks in China for Dräger´s Medical division. Dräger shares are trading at a P/E

2016E of ~12.5x, which represents a discount of almost 20% to its peers.

The second recall in the US for the same battery problem In July Dräger recalled all the battery supply units associated with ventilation products, the

second recall after the one last year for the same issue. In the meantime, Dräger has

changed its battery supplier. Although it is unlikely to be a huge financial problem for Dräger,

the recent recall is nevertheless negative in our view as it may harm Dräger’s excellent

reputation among US hospital customers, which are already in a broader cost-cutting mood

given the general budget pressure in the US healthcare market. Class I recalls in the US are

the most serious type of recall and involve situations where there is a reasonable probability

that use of these products will have serious adverse effects on patients’ health. However,

according to Dräger, no patient has been harmed so far.

China risks persist Dräger reported declining sales in China in H1-15, driven by slowing market growth and

pressure from local suppliers. We do not believe that this trend will turn around soon for

Dräger.

Q2 results wrap-up: nice beat on sales not translating into margins Dräger reported solid 6.8% y/y organic sales growth in Q2, although the regional and

product mix had a negative effect on margins. Currency-adjusted sales declined in higher

margin territories like North America (-7,9% y/y in Q2-15) while they surged in lower margin

regions like the Middle East and Africa (+13% y/y). The larger Medical division reported

5.3% y/y organic sales growth, with declining sales in North America and China.

Valuation: Looks attractive, but some discount to peers justified

Our peer group trades at a P/E and EV/EBITDA 2016E of 15x and 10x and includes names

like Getinge, Medtronic and Mindray for the Medical division and MSA, Honeywell and Tyco

for the Safety division. Both metrics represent a substantial premium to Dräger´s current

valuation of 12.5x and c.6x .We believe that a 10% discount on P/E-basis relative to our peer

group is justified, implying a target P/E 2016E of 13.5x and our new PT of EUR 90.


+49-69-78808 221

[email protected]


KEY FINANCIALS






Margin 10.5% 9.4% 10.8% 11.7% P/E (adj.) 13.9 15.5 12.6 10.5


Margin 7.3% 6.4% 7.6% 8.5% Price/NAV 1.42 1.42 1.28 1.15




EPS (adj.) (EUR) 5.77 5.39 6.66 7.94 Free Cash Flow 88 42 59 98


Difference to consensus 0.7% 10.0% 5.7% 6.4% Net debt (cash) 78 102 78 16




32 / 44

Key Financials Page




EBITDA 270 295 270 256 253 298 336 388 428

EBIT 214 230 201 179 171 211 245 282 318

Pre-tax result 181 196 177 154 151 189 224 262 299


Net result group 125 135 120 105 103 127 150 176 200





Ex ceptionals abov e EBITDA - - - - - - - - -




Ex ceptionals below EBIT - - - - - - - - -


EBITDA 270 295 270 256 253 298 336 388 428

EBIT 214 230 201 179 171 211 245 282 318



Cash Flow Statement

EBITDA 270 295 270 256 253 298 336 388 428


Changes in w orking capital (51) (33) (122) 1 (34) (50) (33) (36) (34)

Other operating CF items 30 9 1 6 (8) (5) (5) (6) (6)



Free cash flow 93 112 (20) 88 42 59 98 131 157

Acquisitions, Disposals, Financial assets 1 (1) 1 (2) (65) - - - -


Capital measures, other (15) (66) (10) 19 32 - - - -

Change in net cash/debt 43 38 (50) 84 (24) 24 62 93 117

Net cash (debt) (150) (112) (162) (78) (102) (78) (16) 77 193

Balance Sheet

Fix ed assets 586 575 605 662 689 712 736 750 765

t/o Goodw ill 260 259 259 263 263 263 263 263 263

Current assets 1,529 1,526 1,460 1,572 1,619 1,678 1,786 1,928 2,092

t/o Inv entories 340 363 372 388 415 430 445 462 478



Group equity 730 727 816 897 952 1,053 1,176 1,323 1,492

t/o Shareholders' equity 723 720 812 894 950 1,051 1,174 1,321 1,490

Interest-bearing liabilities 562 444 394 375 375 375 375 375 375




Net w orking capital 755 794 841 845 878 929 962 998 1,033


Ratios

Rev enue, y /y 3.6% 5.2% 0.0% 2.6% 10.0% 3.5% 3.6% 3.8% 3.5%


EBIT margin (adj.) 9.5% 9.7% 8.5% 7.3% 6.4% 7.6% 8.5% 9.5% 10.3%

EPS (adj.), y /y 32.9% 4.9% -9.4% -10.5% -6.6% 23.6% 19.2% 17.8% 14.5%




Net debt (cash) / EBITDA (adj.) 0.6 0.4 0.6 0.3 0.4 0.3 0.0 (0.2) (0.5)

EBITDA (adj.) / Capex 4.0 4.6 3.1 2.5 2.5 2.9 3.2 3.6 3.8

Free CF y ield (FCF / market cap) 9.3% 9.9% -1.4% 6.9% 3.1% 4.4% 7.3% 9.8% 11.7%

Oper. FCF y ield ([FCF - net int. tax ed] / EV) 8.7% 9.1% -0.2% 6.2% 3.1% 4.2% 6.6% 9.0% 11.4%


33 / 44

Qiagen (QIA GY / QGENF.DE)


EUR 25 +6.6% EUR 5,585 m EUR 35.2 m


EUR 23.45 100.0% 237.4 m

NEUTRAL

(QIA GY)

M&A DRIVES PEER GROUP VALUATIONS We reiterate our Neutral recommendation for Qiagen and adjust our PT to EUR 25 per share

(from EUR 20) driven by a strong peer group performance. Various larger M&A deals,

especially in the life sciences tools sector, have lifted valuations substantially (c.30x P/E

2016E for this sub-peer group) while the valuation of our diagnostics peer group remains

reasonable at c.22x P/E 2016E. Qiagen shares have dipped c.10% from their top this year

but are still up c.20% ytd. We believe that the still plummeting US HPV sales and the slower

than expected adoption of liquid biopsy genetic testing are still near-term risks, while the

longer term growth prospects remain attractive – hence we remain Neutral on the stock.

6% organic growth excluding US HPV business While the organic growth rates for the entire group may not appear stellar (flat y/y in Q1 and

+3% organic growth y/y in Q2-15), organic growth excluding the still plummeting US HPV

sales looks in line to slightly below peers (around 6% y/y for Qiagen versus 8% for Sigma

Aldrich, for example). US HPV sales continue to slide by >40% y/y and fortunately only

account for 4% of group sales today. High growth products (>10% y/y growth) account for

one-third of Qiagen’s group sales while the remainder is growing by around 5% annually.

Liquid biopsy, a promising cancer diagnostic tool, still questioned by some scientists

While the genetic testing of tumour patients offers tremendous opportunities for treatment,

there are still several scientists out there questioning the reliability of genetic tests done out

of blood samples (rather than tissue samples). The basis of today’s liquid biopsy is the so-

called circulating tumour cells and cell-free tumour DNA. Parallel analysis of both have so far

revealed a fairly low congruence of <50%. Apparently, the complex understanding of tumour

biology is lagging behind the extremely fast development of new and more powerful DNA

sequencing technologies like Next Generation Sequencing. This might explain in our view

the somewhat slower adoption of liquid biopsy genetic testing versus initial expectations.

Valuation Qiagen trades at a P/E 2016E of c.22x, a discount of around 15% to its life sciences tools

and diagnostics peers. We note that the valuation of the life sciences tools sector benefits

particularly from various larger M&A transactions (Pall, Sigma Aldrich). Our new PT implies a

target P/E 2016E of 23x, which we consider fair (c.12% discount to our average peer group).


+49-69-78808 221

[email protected]


KEY FINANCIALS


YEAR TO DEC (USD m) 2014 2015E 2016E 2017E YEAR TO DEC (USD m) 2014 2015E 2016E 2017E


Change y /y 3.4% -2.7% 7.0% 7.0% EV/EBITDA (adj.) 12.5 15.3 13.3 11.5


Margin 31.4% 33.5% 34.7% 35.9% P/E (adj.) 19.4 24.3 21.7 19.3


Margin 11.9% 16.4% 17.6% 18.7% Price/NAV 1.77 2.21 2.05 1.89



EPS (rep.) (USD) 0.48 0.59 0.78 0.91 Net debt/EBITDA 1.41 1.02 0.39 -

EPS (adj.) (USD) 1.00 1.09 1.22 1.37 Free Cash Flow 346 169 233 266

EPS (cons.) (USD) 1.00 1.11 1.22 1.36 Market cap (USD m) 4,688 6,281 6,300 6,319

Difference to consensus 0.0% -1.8% 0.0% 0.7% Net debt (cash) 595 448 189 (103)

DPS (USD) 0.00 0.00 0.00 0.00 Other items - - - -



34 / 44

Key Financials Page

Year to December (USD m) 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E



EBITDA 235 319 213 315 365 408 453 533 624

EBIT 100 175 63 161 215 247 281 369 476

Pre-tax result 96 150 37 119 166 218 254 373 483

Income tax , other items (1) (16) 32 (1) (25) (33) (38) (75) (126)

Net result group 95 135 69 117 141 185 216 299 358

Minorities, other 1 - - (1) - - - - -




Ex ceptionals abov e EBITDA (220) (181) (255) (107) (74) (79) (85) (35) 20

Acquisition-related amortisation charges - - - (45) (50) (50) (50) (50) (50)





EBITDA 455 501 468 422 439 487 538 568 605

EBIT 320 356 318 313 339 376 416 454 506



Cash Flow Statement

EBITDA 235 319 213 315 365 408 453 533 624

Cash interest and tax (20) (37) 6 (44) (73) (62) (64) (71) (119)

Changes in w orking capital (5) (81) (54) 111 5 (12) (13) (13) (12)

Other operating CF items 38 (41) 233 74 (10) 25 26 27 28



Free cash flow 159 64 295 346 169 233 266 338 378

Acquisitions, Disposals, Financial assets (474) (132) (105) - - - - - -

Div idends, minority pay outs - - - - - - - - -

Capital measures, other (61) 20 (293) (476) (22) 26 26 (38) (78)

Change in net cash/debt (376) (48) (103) (130) 147 259 292 300 300

Net cash (debt) (314) (363) (465) (595) (448) (189) 103 403 703

Balance Sheet

Fix ed assets 3,008 3,131 3,168 3,306 3,353 3,319 3,282 3,394 3,564

t/o Goodw ill 1,734 1,760 1,856 1,888 1,968 1,968 1,968 1,968 1,968

Current assets 748 995 921 1,149 1,102 1,396 1,726 2,114 2,495

t/o Inv entories 132 135 128 132 129 138 148 162 179


t/o Cash and equiv alents 276 484 380 577 543 802 1,094 1,394 1,694

Group equity 2,558 2,724 2,724 2,658 2,849 3,084 3,351 3,686 4,055


Interest-bearing liabilities 590 847 845 1,172 991 991 991 991 991

Other liabilties and prov isions 609 555 519 624 615 639 665 830 1,013





Ratios

Rev enue, y /y 7.6% 7.2% 3.8% 3.4% -2.7% 7.0% 7.0% 7.0% 6.0%


EBIT margin (adj.) 27.3% 28.4% 24.4% 23.2% 25.8% 26.8% 27.7% 28.3% 29.8%

EPS (adj.), y /y 5.4% 10.2% -5.6% -2.0% 9.0% 11.9% 12.3% 10.2% 4.6%




Net debt (cash) / EBITDA (adj.) 0.7 0.7 1.0 1.4 1.0 0.4 (0.2) (0.7) (1.2)

EBITDA (adj.) / Capex 5.2 5.2 4.5 3.8 3.7 3.8 4.0 4.1 4.2




35 / 44

Straumann (STMN SW / STMN.SW)


CHF 310 +3.4% EUR 4,243 m EUR 8.6 m


CHF 299.75 Q3 Revenue 62.2% 15.6 m

OUTPERFORM

(STMN SW)

CONFIDENT GROWTH STRATEGY One of the key takeways from our roadshow with CFO Peter Hackel and Mark Hill, Head of

Corporate Communication, in the US and Canada last week was management’s confidence

in the company’s growth strategy. Indeed, the main topics throughout the roadshow were the

success of STMN’s strategy of becoming a total solution provider and the promising growth

opportunities in new markets. Despite the admittedly generous valuation, we believe STMN

is not as expensive as it appears on the basis of multiples alone. We reiterate our

Outperform recommendation with an unchanged PT of CHF 310.

Update on Neodent and the value platform Instradent We also obtained more insight into the Neodent integration and the projected expansion of

the value platform. STMN’s management is confident that Neodent’s 35% EBITDA margin is

sustainable, given its reputation for quality, the competitive pricing model and the broad

distribution network in Brazil. STMN expects Instradent to break even overall or to report a

slight profit in 2016. However, investors were clearly concerned about the growth of Neodent

and the value platform’s possible dilution of the group margin. Mr Hackel and Mr Hill spent a

great deal of time explaining the operational leverage the business model enjoys and were

very persuasive on Neodent’s ability to add to the group’s 24% EBIT margin.

Promising growth drivers for the company

STMN’s value portfolio is clearly a driver of the H1 guidance increase. Management

emphasised the opportunities for further growth of the platform in China, Russia, Eastern

Europe and Latin America. Here plans are already afoot for subsidiaries in Colombia,

Argentina and Russia, as well as for a new distribution agreement in Thailand. Most

important is the new route-to-market approach in China, where STMN is focused on

premium products for now but assessing different options for entering the value segment. Mr

Hackel explained the rationale for acquiring the Chinese distributor BJFM coupled with a

major ramp-up of marketing, training and education of the sales force and distribution

personnel, which should help spur growth in the private hospital sector.

Outlook varies according to the region

Management was transparent about weaker growth in Europe compared to other markets

and no clear timeframe was given as to how long this would continue. Growth has been solid

in North America but, at around 16%, the company’s US market share lags STMN’s global

market share of 24% by quite some way. STMN is addressing the gap by collaborating with

Patterson, which has started rather slowly but offers a decent long-term opportunity. As the

company is currently beefing up its US sales presence, we are confident that STMN will be

able to gain further market share.


+49-69-78808 221

[email protected]

Markus Gola

+49-69-78808-233

[email protected]


KEY FINANCIALS


YEAR TO DEC (CHF m) 2014 2015E 2016E 2017E YEAR TO DEC (CHF m) 2014 2015E 2016E 2017E

Group rev enue 788 804 871 932 EV/Sales 3.77 5.54 4.97 4.69



Margin 32.2% 27.2% 27.9% 26.2% P/E (adj.) 24.6 42.8 26.4 24.5


Margin 28.7% 23.2% 24.3% 24.5% Price/NAV 4.38 5.71 4.88 4.32



EPS (rep.) (CHF) 10.15 6.20 10.96 11.88 Net debt/EBITDA - - - -

EPS (adj.) (CHF) 8.42 7.01 11.34 12.25 Free Cash Flow 127 108 170 167

EPS (cons.) (CHF) 8.42 9.40 11.02 12.40 Market cap (CHF m) 3,227 4,661 4,661 4,661

Difference to consensus 0.0% -25.4% 2.9% -1.2% Net debt (cash) (255) (211) (333) (292)

DPS (CHF) 3.75 3.75 3.75 4.00 Other items - - - -



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Key Financials Page

Year to December (CHF m) 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E


Group revenue (All items as reported) 694 686 680 788 804 871 932 987 1,038

EBITDA 157 119 150 253 218 243 244 278 295

EBIT 80 63 116 226 186 212 228 245 260

Pre-tax result 78 57 120 255 182 208 225 243 260


Net result group 71 37 101 235 163 175 189 204 219

Minorities, other - - - - (3) (4) (5) (5) (5)


EPS, fully diluted (CHF) 4.54 2.42 6.54 10.15 6.20 10.96 11.88 12.80 13.71


Ex ceptionals abov e EBITDA (6) (35) (9) - - - - - -

Acquisition-related amortisation charges (40) (5) - - (15) (7) (7) (7) (7)





EBITDA 163 133 157 253 218 243 244 278 295

EBIT 126 103 124 226 201 219 235 252 267


EPS, fully diluted (CHF) 7.24 4.37 7.01 8.42 7.01 11.34 12.25 13.18 14.09

Cash Flow Statement

EBITDA 157 119 150 253 218 243 244 278 295


Changes in w orking capital 4 11 (1) (41) (3) (9) (9) (7) (6)

Other operating CF items (12) 4 23 (40) (61) 3 3 4 4



Free cash flow 121 94 139 127 108 170 167 200 215

Acquisitions, Disposals, Financial assets (6) (265) (50) (7) (103) - (122) - -


Capital measures, other (29) (6) 9 12 10 - - - -

Change in net cash/debt 27 (235) 40 74 (44) 122 (41) 108 115

Net cash (debt) 375 140 181 255 211 333 292 400 516

Balance Sheet

Fix ed assets 255 460 458 498 461 467 481 478 475

t/o Goodw ill 85 63 63 62 185 185 185 185 185

Current assets 556 317 562 663 823 948 1,032 1,150 1,274

t/o Inv entories 67 64 62 69 92 92 96 100 104



Group equity 671 602 631 737 853 998 1,079 1,186 1,300

t/o Shareholders' equity 671 602 631 737 816 956 1,079 1,186 1,300

Interest-bearing liabilities 2 - 203 204 204 204 204 204 204



Balance sheet total 811 777 1,020 1,161 1,284 1,415 1,513 1,628 1,749


Capital employ ed (incl. Goodw ill) 343 534 528 590 584 594 616 620 624

Ratios

Rev enue, y /y -6.0% -1.1% -0.9% 15.9% 2.1% 8.3% 7.0% 5.9% 5.2%


EBIT margin (adj.) 18.2% 15.0% 18.3% 28.7% 25.1% 25.1% 25.3% 25.5% 25.8%

EPS (adj.), y /y -13.2% -39.6% 60.4% 20.1% -16.7% 61.8% 8.0% 7.6% 6.9%




Net debt (cash) / EBITDA (adj.) (2.3) (1.1) (1.2) (1.0) (1.0) (1.4) (1.2) (1.4) (1.7)

EBITDA (adj.) / Capex 8.4 6.6 12.4 13.4 10.6 8.9 8.4 9.1 9.3




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Appendix: Regulatory Disclosures and Disclaimer

MainFirst Bank AG (here forth referred to as “MainFirst”) is an independent Bank and Investment Firm subject to supervision by the German Federal Financial Services Authority (Bundesanstalt für Finanzdienstleistungsaufsicht; BaFin). MainFirst produces and distributes financial analysis directly and through its affiliates to eligible counterparties, professional clients and other institutional (non-retail) investors as defined by applicable local laws (here forth referred to as “Qualified Institutional Investors”) in accordance with the European Commission Directive 2003/125/EC, the German Securities Trading Act (Wertpapierhandelsgesetz; WpHG), the Regulation governing the Analysis of Financial Instruments (Finanzanalyseverordnung; FinAnV) and any further applicable laws and regulations. The following regulatory disclosures and disclaimer provide necessary investor information on the applicable rules governing the production and distribution of financial analysis.

Company-Specific Disclosures Pursuant to European Commission Directive 2003/125/EC, Section 34b WpHG, Section 5 FinAnV and any further applicable rules in case of distribution through its affiliates, MainFirst has to disclose relationships and circumstances that may create conflicts of interest because they could impair the impartiality of the producer(s), MainFirst including its affiliates or any other persons or entities that are acting on their behalf and are involved in the production of this Publication.

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(Key 11) a draft of this Publication was shown to the issuer (for fact checking purposes) and changes have been made to this report prior to its publication.

Company Key

Source: MainFirst

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For information on the effective organizational and administrative arrangements set up within MainFirst for the prevention and avoidance of conflicts of interest with respect to recommendations, including information barriers, please see the MainFirst Conflicts of Interest Policy on http://www.mainfirst.com/en/downloads/legal-disclaimer-clauses.html. MainFirst discloses on a daily basis the proportion of all recommendations that are “outperform” and “underperform” as well as the proportion of issuers corresponding to each of these categories to which MainF irst has supplied material investment banking services over the previous 12 months on http://www.mainfirst.com/en/downloads/legal-disclaimer-clauses.html under "Equity Research Disclosure of Interests and Conflicts of Interest".

Recommendation Definition

The recommendations of MainFirst are defined as follows. If not stated otherwise on the title page of the Publication the presumed performance is calculated always over the next 12 months.

Recommendation Definition of Recommendation Structure

Outperform Expected to appreciate and outperform the STOXX Europe 600 by at least 5% Underperform Expected to underperform the STOXX Europe 600 by at least 5% Neutral Expected to perform broadly in line (+/- 5%) with the STOXX Europe 600

Source: MainFirst

http://www.mainfirst.com/en/downloads/legal-disclaimer-clauses.html



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Any forecasts or price targets shown for Companies and/or financial instruments discussed in this Publication may not be achieved due to multiple risk factors including but not limited to market and sector volatility, corporate action, unavailability or inaccurateness of information despite diligent verification or the subsequent recognition that underlying assumptions made by MainFirst or other sources relied upon in the Publication were unfunded.

Distribution of Equity Research Recommendations

Recommendation No. of Companies As a % of Total Banking Services Provided As a % of Total

Outperform 176 53 4 100.00 Underperform 79 24 0 0.00 Neutral 74 22 0 0.00

Source: MainFirst, daily update also available on http://www.mainfirst.com/en/downloads/legal-disclaimer-clauses.html under "Equity Research Disclosure of Interests and Conflicts of Interest"

Basis of Valuation or Methodology

Any basis of valuation or methodology used to evaluate a financial instrument or Companies, or to set a price target for a financial instrument, is herewith adequately summarized. The so-called fair value is calculated from a combination of the valuation model applied (e.g. DCF, Sum-of-the-Parts Model, Peer Group Valuation). The different valuation methods are detailed in the Research Guidelines on http://www.mainfirst.com/fileadmin/pdf/downloads/ResearchGuidelines.pdf. Any changes in the methodology or basis of valuation used are included in the Publication.

Recommendation History


http://www.mainfirst.com/fileadmin/pdf/downloads/ResearchGuidelines.pdf


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Pricing of Financial Instruments

Unless otherwise noted, the financial instruments mentioned in this Publication are priced as of market close on the previous trading day. All other financial instruments mentioned in this Publication are summarized in the following table.


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Companies Mentioned in this Report

Sources: MainFirst estimates, Bloomberg (*) O – Outperform, U – Underperform, N – Neutral, NR – Not rated

Company name RIC FX Price Rating (*) Company name RIC FX Price Rating (*)

09 Sep 15 09 Sep 15

Actelion Ltd. CH0010532478 CHF 131.9 Outperform LifePoint Health, Inc. US53219L1098 USD 77.8 NR

Agilent Technologies, Inc. US00846U1016 USD 35.1 NR Lonza Group AG CH0013841017 CHF 130.5 Outperform

ALK-abello A/S Class B DK0060027142 DKK 780.0 NR Luminex Corporation US55027E1029 USD 18.1 NR

Allergan plc IE00BY9D5467 EUR 293.7 NR McKesson Corporation US58155Q1031 USD 192.8 NR

Amgen Inc. US0311621009 USD 147.0 NR Meda AB Class A SE0000221723 SEK 126.5 NR

Amplifon S.p.A. IT0004056880 EUR 6.8 NR Medtronic Plc IE00BTN1Y115 EUR 69.0 NR

Aptargroup, Inc. US0383361039 USD 67.3 NR Merck KGaA DE0006599905 EUR 83.7 Outperform

Audika Groupe FR0000063752 EUR 17.5 NR Meridian Bioscience, Inc. US5895841014 USD 18.4 NR

Baxter International Inc. US0718131099 USD 36.1 NR Meridian Bioscience, Inc. US5895841014 USD 18.4 NR

Bayer AG DE000BAY0017 EUR 117.7 Outperform Mindray Medical International Ltd. Sponsored ADR Class AUS6026751007 USD 23.8 NR

Becton, Dickinson and Company US0758871091 USD 134.3 NR MSA Safety, Inc. US5534981064 USD 44.4 NR

Biogen Inc. US09062X1037 USD 302.3 NR Mylan N.V. NL0011031208 USD 48.1 NR

bioMerieux SA FR0010096479 EUR 99.2 NR Novartis AG CH0012005267 CHF 92.5 Neutral

Bio-Rad Laboratories, Inc. Class A US0905722072 USD 136.4 NR Novo Nordisk A/S Class B DK0060534915 DKK 364.8 Underperform

Bio-Techne Corporation US09073M1045 USD 92.2 NR Novozymes A/S Class B DK0060336014 DKK 287.8 NR

Biotest AG Pref DE0005227235 EUR 21.0 Outperform Osstem Implant Co., Ltd. KR7048260004 KRW 60,200.0 NR

Boston Scientific Corporation US1011371077 USD 16.2 NR Owens-Illinois, Inc. US6907684038 USD 19.9 NR

Bruker Corporation US1167941087 USD 17.8 NR Pall Corporation US6964293079 USD 127.1 NR

Cardinal Health, Inc. US14149Y1082 USD 80.6 NR Perrigo Co. Plc IE00BGH1M568 USD 178.8 NR

Carl Zeiss Meditec AG DE0005313704 EUR 23.8 NR QIAGEN NV NL0000240000 USD 25.9 Neutral

Chemical Works of Gedeon Richter Plc HU0000123096 HUF 4,230.0 NR Reckitt Benckiser Group plc GB00B24CGK77 GBP 57.0 NR

Cochlear Limited AU000000COH5 AUD 83.5 NR Rexam PLC GB00BMHTPY25 GBP 5.3 NR

Croda International Plc GB0002335270 GBP 28.0 Underperform RHON-KLINIKUM AG DE0007042301 EUR 23.8 Outperform

CSL Limited AU000000CSL8 AUD 90.2 NR Roche Holding Ltd Genusssch. CH0012032048 CHF 259.5 Outperform

CVS Health Corporation US1266501006 USD 100.1 NR RPC Group Plc GB0007197378 GBP 6.5 NR

Danaher Corporation US2358511028 USD 85.6 NR Sagent Pharmaceuticals, Inc. US7866921031 USD 19.5 NR

DaVita HealthCare Partners Inc. US23918K1088 USD 74.6 NR Sanofi FR0000120578 EUR 87.2 Neutral

DENTSPLY International Inc. US2490301072 USD 51.2 NR Sartorius Stedim Biotech SA FR0000053266 EUR 272.3 NR

DiaSorin S.p.A. IT0003492391 EUR 40.7 NR Shire PLC JE00B2QKY057 GBP 48.5 NR

DiaSorin S.p.A. IT0003492391 EUR 40.7 NR Sigma-Aldrich Corporation US8265521018 USD 139.5 NR

Dr. Reddy's Laboratories Ltd. INE089A01023 INR 4,056.2 NR Sirona Dental Systems, Inc. US82966C1036 USD 94.1 NR

Draegerwerk AG & Co. KGaA Pref DE0005550636 EUR 82.5 Neutral Sonova Holding AG CH0012549785 CHF 125.7 Outperform

Endo International Plc IE00BJ3V9050 EUR 73.0 NR STADA Arzneimittel AG DE0007251803 EUR 30.4 Neutral

Eurofins Scientific Societe Europeenne FR0000038259 EUR 286.0 Outperform STRATEC Biomedical AG DE000STRA555 EUR 47.6 NR

Fresenius Medical Care AG & Co. KGaA DE0005785802 EUR 68.3 Neutral Straumann Holding AG CH0012280076 CHF 295.0 Outperform

Fresenius SE & Co. KGaA DE0005785604 EUR 62.6 Neutral Stryker Corporation US8636671013 USD 95.3 NR

Generale de Sante SA FR0000044471 EUR 15.8 NR Sun Pharmaceutical Industries LimitedINE044A01036 INR 858.6 NR

Gerresheimer AG DE000A0LD6E6 EUR 63.6 Outperform Symrise AG DE000SYM9999 EUR 52.6 Outperform

Getinge AB Class B SE0000202624 SEK 199.1 NR Tecan Trading AG CH0012100191 CHF 129.6 NR

Gilead Sciences, Inc. US3755581036 USD 102.1 NR Teva Pharmaceutical Industries LimitedIL0006290147 ILS 258.2 NR

Givaudan SA CH0010645932 CHF 1,640.0 Outperform Thermo Fisher Scientific Inc. US8835561023 USD 121.2 NR

GN Store Nord A/S DK0010272632 DKK 116.3 NR Tyco International PLC IE00BQRQXQ92 EUR 35.4 NR

Grifols, S.A. Class A ES0171996012 EUR 37.1 Outperform UCB S.A. BE0003739530 EUR 71.1 Neutral

Henry Schein, Inc. US8064071025 USD 133.3 NR Walgreens Boots Alliance Inc US9314271084 USD 87.4 NR

Hikma Pharmaceuticals Plc GB00B0LCW083 GBP 23.5 NR Waters Corporation US9418481035 USD 120.0 NR

Honeywell International Inc. US4385161066 USD 96.6 NR West Pharmaceutical Services, Inc. US9553061055 USD 55.0 NR

Hospira, Inc. US4410601003 USD 90.0 NR William Demant Holding A/S DK0010268440 DKK 550.0 Neutral

Illumina, Inc. US4523271090 USD 193.2 NR Ypsomed Holding AG CH0019396990 CHF 105.0 NR

Ipsen SA FR0010259150 EUR 58.8 NR Zimmer Biomet Holdings, Inc. US98956P1021 USD 100.5 NR

Jean Coutu Group (PJC) Inc. Class A CA47215Q1046 CAD 20.6 NR


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43 / 44

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