Bayer’s profit warning at the beginning of October hit market participants like a thunderbolt. The paper then collapsed around 13 percent and has since fluctuated between EUR 45 and EUR 47 and thus to its lowest level since the end of 2011. Measured against the all-time high, the losses now add up to 68 percent! Whether the wave of sales has ended – nobody wants to put their hand in the fire at the moment. Today the share is one of the biggest losers in the DAX® in the first few hours of trading. However, the sharp fall in prices and the ongoing uncertainty also offer interesting investment opportunities.
When Bayer started taking over US seed manufacturer Monsanto in 2016, it was not foreseeable that the acquisition would cause such headaches for management and investors for years. Bayer’s goal was to become the world’s largest supplier of crop protection products and seeds. Since then, however, a process avalanche has been rolling towards Leverkusen because of Monsanto’s glyphosate. Settlements have been hard negotiated in the past few months. At the end of September, Bayer confirmed that it was on the right track. A few days later, however, the next bad news for the shareholders followed – a profit warning. Ironically, the growth division of agrochemicals with Monsanto is facing a special write-off worth billions. This sector generated around half of total sales in the first half of the year. The targets for 2020, which had already been lowered in August, were confirmed. For 2021, however, the company is now expecting a decline in earnings. CEO Werner Baumann has now put the brakes on costs again. “In order to move Bayer forward in a persistently challenging market environment, the Executive Board has decided to initiate additional operational savings of more than 1.5 billion euros per year from 2024,” the company announced.
The other two divisions, Pharma (37.5 percent of total sales in the first half of 2020) and Consumer Health (11.5 percent) are currently unable to compensate for the weaknesses in the Crop Science area. The business with over-the-counter drugs could grow by around four percent over the year. However, this is where the lowest margins are earned. In the pharmaceutical sector, the company expects a decline in sales in 2020. The weak point here is that Bayer still has only three real blockbusters in its portfolio with annual sales of more than one billion euros and the special focus is on Xeralto. Xeralto posted double-digit sales growth in the first half of the year, generating more than 30 percent of total pharmaceutical sales. The proceeds from the eye medicine Eylea and, above all, from the contraceptive drug Mirena, on the other hand, fell in double digits.
Bayer once paid $ 66 billion for Monsanto. Today the entire group is worth the equivalent of 53.7 billion US dollars. With a P / E ratio of around seven and a dividend yield of 4.7 percent (source: Thomson Reuters), depreciation, penalties in connection with the glyphosate processes and earnings revisions appear to be factored in to a certain extent. However, this does not mean that the ground has currently been found. Further bad news could put the share under further pressure. Against this background, a bonus cap certificate could be an interesting alternative to direct entry into the share. A barrier at EUR 34 and a bonus cap level of EUR 65 have been set for one of the securities listed below. If Bayer shares are always quoted above EUR 34 until the end of the term in March, investors receive EUR 65. However, if the mark is touched or fallen below, there is a risk of losses.
Chart technical outlook: Bayer
Resistance marks: 47.25 / 52.80 EUR
Support stamps: 35.30 / 40 / 43.75 / 44.90 EUR
Bayer stock shows a long-term downward trend. After the recent fall, the paper has bottomed out between EUR 44.90 and EUR 47.25. If the breakout succeeds above the upper limit, there is a chance that the gap that was torn at the end of September will be closed again in the medium term. However, if the paper falls below EUR 44.90, there is a risk of another drop to EUR 43.75.
Bayer in EUR; Daily chart (1 candle = 1 day)
Observation period: January 16, 2020 – October 13, 2020. Historical considerations are not reliable indicators for future developments. Source: tradingdesk.onemarkets.de
Bayer in EUR; Weekly chart (1 candle = 1 week)
Observation period: 07/10/2014 – 07/09/2020. Historical considerations are not reliable indicators for future developments. Source: onemarkets.tradingdesk.de
Bonus cap certificates on Bayer shares for speculation that the stock will move sideways or moderately upwards
|Underlying||WKN||Selling price in EUR||Barrier in EUR||Cap (upper price limit) in EUR||Final valuation day|
|Bayer||HR2A6T||58.09||34.00||65.00||March 19, 2021|
Source: HypoVereinsbank onemarkets; Status: October 13, 2020; 11:37 am
You can find information about Bons-Cap certificates in our brochure or our little film.
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Please note the important information and the disclaimer.
This information does not constitute investment advice, but advertising. The public offer is made exclusively on the basis of a securities prospectus approved by the Federal Financial Supervisory Authority (“BaFin”). Approval of the prospectus should not be understood as a recommendation to purchase these UniCredit Bank AG securities. Only the prospectus including any supplements is relevant and the Final Terms. It is recommended that you read these documents carefully before making any investment decision in order to fully understand the potential risks and opportunities when making an investment decision. You are about to acquire a product that is not easy and can be difficult to understand.
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The article Bayer – Profit Warning offers interesting opportunities! first appeared on onemarkets blog (HypoVereinsbank – UniCredit Bank AG).
Author: Richard Pfadenhauer