2023-09-15 05:21:46 ET
Summary
- Stevanato Group is a global provider of drug containment with a CAPEX growth plan to support growth and reach new geographical diversification.
- Balance sheet flexibility thanks to margin expansions.
- Strong secular tailwinds in biologics support the company's economic moat. Higher guidance coupled with solid results makes Stevanato a buy.
Today, we focused our activities on Stevanato Group (STVN) analysis. The company is an Italian-based manufacturer and distributor of Diagnostic Solutions and Biopharmaceutical products, including drug containment solutions. The company engages its activities across all drug development stages, with production facilities located mainly in Europe. Before commenting on the company's financials and related valuation, it is important to recap a few events that will likely reshape Stevanato's short-term horizon.
After exceeding $8 billion in market capitalization on the NYSE, rumors indicate that the group is willing to open for a new capital increase. The global supplier of containment solutions is evaluating potential new equity with an equity offering that could reach €350 million. An extraordinary shareholder meeting has been called for early October with this optionality. There is still no certainty about using proceeds; however, it is easy to assume that the company wants to continue its CAPEX investment plan and direct more investment toward China and the USA. Still in support of an increased equity offering, in an interview dated back in May, the CEO underlined that « the financial structure is solid. » However, we should recall that Stevanato's free float is only 12% ," and in case of a new offering, this might support the company's stock liquidity and potential capital upside appreciation.
Q2 Results and CAPEX Plan
With 16 sites worldwide and 1,800 employees, the company continues focusing on new product innovation. The latest is Vertiva , a recent version of the On-Body Delivery System designed to allow the transition from basal to bolus injection and suitable for a wide range of subcutaneous therapies. Stevanato recently announced a collaboration with Thermo Fisher Scientific to launch the product. In detail, the platform will be offered as an integrated device and fill-and-finish solution, optimizing the pharmaceutical supply chain with a combination of skills that will likely support pharmaceutical companies' drug development. In addition to its proprietary device platform, Stevanato Group will offer its pre-sterilized cartridge vials as drug containment solutions along with assembly equipment.
Meanwhile, the group continues to grow; in Q2, Stevanato recorded revenues of €255.3 million and an EBITDA margin of 26.7%. The company also confirmed its 2023 financial guidance, anticipating a turnover of around €1 with an EBITDA between €290.5 and €302.5 million.
Stevanato H1 Financials in a Snap Stevanato 2023 outlook
As mentioned, Stevanto has already invested in its Italian headquarter, where 39 new production lines have been introduced in the last four years to increase industrial capacity. Other planned investments, such as those expected in Latina within the year (Italy) and in the United States in Fishers, are expected to be completed by 2024. Looking at the investment plan in more detail, the group plans to expand the production site in Indiana for €500 million until 2027. The company has CAPEX optionality and can draw €130 million from existing loans and €61 million of cash at the Q2 closing numbers. Here at the Lab, we anticipate that Stevanato has three-quarters of the current CAPEX plan for existing projects. We forecast a net debt of €300 million in debt with a net leverage of 1x by year-end.
Stevanato plans to double syringe capacity and support new products such as cartridges and sterile vials. The Latina industrial platform is expected to start production by year-end, while Fishers will likely begin in H1 2024. This will drive nigh-single digit sales, and based on historical performance, Stevanato is expecting to achieve an IRR well above 20%. An essential CAPEX plan might include restarting investment in China. In our estimates, FCF is expected to break even in 2024 and is forecasted to return positive in 2025.
What is critical to assess in Stevanato is the profitability development. Despite start-up costs and higher depreciation (100 and 80 basis points of negative impact), the company was able to increase its adj. EBITDA margin of 30 basis points to 26.7%. These non-recurring start-up costs are added back to adj. EBITDA. With the current CAPEX plan, we foresee revenue of 1.21 billion in 2024 with an EBITDA of €345 million, arriving at a 2024 EPS of €0.75.
Conclusion and Valuation
Here at the Lab, Stevanto offers economic moat and product longevity. Margin expansion and durable growth estimated cannot go unnoticed. Stevanato's engineering offering is a critical competitive advantage, supporting its value-added product solution in containment. Margin expansion, higher guidance, and no COVID-19 impact on our forecasted numbers make the company a buy. Based on a 25x EV/EBITDA multiple, we derived a target price of $35.5 per share, initiating the company with a buy recommendation. Our downside risks include growth deceleration due to lower-than-expected demand, clients destocking activities, higher start-up costs with execution risk on the CAPEX plan, and a lower sector valuation.
For further details see:
Stevanato: Secular Tailwinds In Biologics Support Downstream Demand