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Investing.com -- The German online pharmacy sector is poised for significant growth following regulatory changes, according to Barclays.
Mandatory electronic prescriptions (eRx) have removed much of the friction around buying prescription drugs online, leaving the sector largely under-penetrated, Barclays said in its latest research.
The brokerage estimates online penetration at around 2% today, with scope to reach “~8% by 2030E” in its base case.
By comparison, Sweden mandated eRx in 2016 and now sees online penetration of 17%.
Barclays said German regulation “largely supports growth” but noted some uncertainty remains.
The brokerage identifies the “key questions for investors” as how large the German prescription (Rx) market can become and what “steady-state margins look like.” Barclays said it sees “scope for upside to consensus Rx estimates and remains constructive on the five-year outlook.”
Among sector players, Barclays initiated coverage on Redcare at overweight with a €140 price target, and DocMorris at equal weight with a CHF 7 price target.
“Redcare, as the market leader, is best placed to capitalise on this opportunity,” Barclays said.
It forecasts Redcare’s adjusted EPS to be 6% ahead of Bloomberg consensus in FY25E, with further upside of 8% and 11% in FY26E and FY27E, respectively.
Barclays expects Redcare’s earnings and free cash flow to turn positive from FY26E and sees “EV/NOPAT falling to ~15x by 2028E.” In an upside case, Redcare could be worth €210, while a downside case points to €70.
DocMorris faces more challenges, Barclays said. It expects “negative earnings and FCF until FY29E,” with adjusted EBITDA about 3% above consensus in FY25E but broadly in line thereafter.
Barclays described DocMorris as “highly sensitive to German Rx trends.” In an upside scenario, DocMorris could reach CHF 11.
In a downside case, Barclays warned the balance sheet “could become stretched, potentially requiring external funding or restructuring,” with “significant equity dilution” possible.
Barclays highlighted three key drivers for growth: a large and under-penetrated German online Rx TAM, attractive OTC/BPC markets, and potential margin expansion through “better sourcing, scale, automation offering fulfilment efficiencies and software/services (e.g. TeleClinic).”
Risks include regulation changes, competition, especially from dm’s planned online pharmacy, and “disruption from the tech transition from CardLink to Proof of Patient Presence.”
Barclays added that the latter risk is “overplayed” given CardLink licences have been extended until PoPP infrastructure is ready.