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On Wednesday, Barclays (LON:BARC) initiated coverage on PolyPeptide Group AG (SIX:PPGN:SW) stock with an Overweight rating and a price target of CHF 40.00. The firm anticipates a return to positive EBITDA for PolyPeptide in 2024, following a loss-making fiscal year 2023. This expected turnaround is attributed to increased utilization stemming from non-COVID demand and projected positive net income starting from fiscal year 2025.
PolyPeptide's path to reclaiming profitability that aligns with its peers is supported by significant growth drivers in the market, including demand for GLP-1 API. Barclays forecasts that fiscal year 2024 will represent the lowest valuation point for PolyPeptide shares. Despite current reliance on unfunded capital expenditures, PolyPeptide has demonstrated a willingness to incur debt to finance these investments, which are crucial for future growth.
Although this strategy has increased PolyPeptide's leverage to 1.6x net debt to trailing twelve months EBITDA in the first half of 2024, Barclays views this as a temporary effect of reduced EBITDA. They expect this financial pressure to diminish progressively over fiscal year 2025 due to the operational leverage expected to be gained.
Barclays' analysis suggests that the recovery of PolyPeptide's sales is less risky, forecasting a 14% compound annual growth rate in top-line revenue from fiscal year 2023 to 2028. Currently, PolyPeptide's shares are trading at 1.8x enterprise value to sales and 13.6x enterprise value to EBITDA, based on Bloomberg consensus forecasts for fiscal year 2026.
These multiples represent a significant discount when compared to the general CDMO industry averages of 4.6x and 14.7x, respectively, and even to PolyPeptide's own historical averages of 4.0x and 14.8x.
Barclays also notes the upcoming Braine L'Alleud site, expected to be operational by the end of 2024, and a series of commercial projects that are predicted to support the company's high single-digit percentage growth guidance and rapid operational expansion. Given PolyPeptide's exposure to high-growth end-markets, Barclays concludes that the company's prospects are improving.
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