Sanofi SA

Sanofi SA (LON: 0O59) is an FTSE listed global biopharmaceutical company involved in transforming scientific innovation into healthcare solutions internationally.

On 29 July 2021, Sanofi would release its Q2 FY2021 results.

Investment Rationale for Valuation – SELL at EURO 87.24

• The management failed to provide detailed guidance for FY2021 due to a lack of visibility.
• The spread of the delta variant to Covid-19 could lead to disruption in the clinical trials and operations of the Company.
• In the last two years, the stock generated a decent return of about 16.07%. Hence, investors could book a decent profit by closing their position.
• The stock is trading at its 52-week high price. Hence, there is serious doubt about its upside potential from the current level, indicating a potential correction in the near term.
• On the technical front, the 20-day EMA at about EURO 87.55 is sustaining above the stock price. Hence, there could be a potential downward movement in the stock price in the near term.

Key Risks

• The strict rules and policies regarding clinical trials could lead to significant investments in research and developments. It could drain the financial resources of a company.
• With the rise in demand and new entrants, there is a strong competitive rivalry in the market, putting pricing pressure on the companies.
• The Covid-19 pandemic created supply chain disruption, increasing costs to the companies.

Q1 FY2021 Trading Update (released on 28 April 2021)

(Source: Company Website)

• Driven by increases of 15.3% in specialty care sales and 5.3% in vaccine sales, Q1 FY2021 overall sales surged by 2.4% at CER.
• The Company delivered a strong performance in Dupixent® in the U.S. and China.
• Due to efficiency and sales performance, Q1 FY2021 business EPS rose by 5.2% on a reported basis and 15.0% at CER.
• The Company became a member of the top five companies of the 2021 Access to Medicine index while also implementing the corporate social responsibility strategy.

One Year Share Price Chart

(Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

Conclusion

There are continuing macro uncertainties and challenges in FY2021. The delta plus Covid-19 variant could pose further restrictions. Though Sanofi recently received approval for the late-stage trial of its Covid-19 vaccine in India, its stock is trading at its 52-week high, indicating overstretched valuation. The stock made a 52-week low and high of EURO 78.90 and EURO 87.36, respectively. 

Considering the macroeconomic uncertainty and the unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Sanofi SA at the current market price of EURO 87.24 (as of 21 July 2021 at 7:50 AM GMT), while we will revisit our stance based on the outcome of its late-stage clinical trials. 

Gamma Communications Plc

Gamma Communications Plc (LON: GAMA) is an FTSE AIM All-Share index listed company involved in providing communication services in Western Europe.

On 7 September 2021, the Company would release its H1 FY2021 results.

The last dividend of GBX 7.80 per share was paid on 24-June-2021 (final dividend).

Investment Rationale for Valuation – SELL at GBX 2,000.00

• The management could not provide detailed guidance for FY2021 due to a lack of visibility and macroeconomic uncertainty.
• In the last two years, the stock generated a good return of about 94.58%, offering investors an opportunity to book a decent profit.
• The stock is trading very near its 52-week high price, raising doubt about its upside potential from the current level. Hence, a correction in the near term cannot be ruled out.

Key Risks

• The Company is exposed to cyber threats and telephony fraud, which could affect its reputation as well as its financials.
• The payment of dividends could affect the liquidity of the Company.
• Service disruptions could affect the Company’s ability to grow sustainably.

H1 FY2021 Pre-close Trading Update (released on 13 July 2021) 

• Driven by its business model with ~90% recurring revenue, GAMA in H1 FY2021 experienced very few cancellations of contracts.
• In UK Direct business, the performance slightly exceeded expectations, with growth close to previous years. Also, in the UK Indirect business, the performance was at a similar level as in the previous period.
• The overseas business continued to grow, and the performance in H1 FY2021 met expectations.
• GAMA launched some key products in the UK, including Phone Line +.
• During H1 FY2021, GAMA acquired Mission Labs Limited for £40.2 million.

One Year Share Price Chart

(Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

There are continuing macro uncertainties in FY2021, with potential disruptions in economic activities in the markets where the Company operates. Hence, it would be prudent to liquidate the position at a profit as the stock is also trading near its 52-week high, indicating overstretched valuation. Overall, we do not have significant catalysts to support an uptick in the stock price and recommend exiting the position currently. The stock made a 52-week low and high of GBX 1,430.00 and GBX 2,100.00, respectively.

Considering the continued economic and market uncertainty, lack of detailed guidance, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Gamma Communications Plc at the current market price of GBX 2,000.00 (as of 21 July 2021 at 7:55 AM GMT), while we will revisit our stance based on further corporate announcements by the Company. 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

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