Swiss Generic Manufacturer Siegfried Increased Sales And EBITDA

| About: Siegfried Holdings (SGFEF)
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Sales have increased 49.3%.

The stock is getting closer to trading in line with rivals.

The stock is up since we first recommended it on Seeking Alpha.

Swiss generic pharmaceutical manufacturer Siegfried Holdings (OTC:SGFEF) has released its 2016 Annual Report. Sales and EBITDA have dramatically increased. The stock still sells at a discount to its peers.

There are 4,166,591 shares, the stock trades for CHF243.80, and the market cap is CHF1.016 billion. The dollar and Swiss franc trade at parity so I'm not going to translate into U.S. dollars. Earnings per share are CHF7.18 and the stock trades at a price-to-earnings ratio of 34. The dividend will be increased from CHF1.80 to CHF2. The dividend yield is 0.8%.

Sales were up 49.3% to CHF717.7 million. EBITDA grew 30.1% to CHF104.2 million and the EBITDA margin is 14.5%. Earnings were down to CHF27.9 million from CHF 39.1 million in the previous year.

The balance sheet shows CHF156 million in receivables and CHF31.6 million in cash. The liability side shows CHF91.1 million in debt and CHF55.3 million in payables. The cash flow statement shows CHF57.113 million in operating income and CHF64.909 million spent on property, plant, and equipment. The free cash flow is a loss of CHF7.8 million. That's ok, Siegfried spent a lot on updating its labs and integrating units.

Earnings were down due to the integration of BASF's (OTCQX:BASFY) ingredients division, taxes, and other expenses. Tweedy, Browne is the largest shareholder with 9%. That is how I first came across Siegfried. We are up about 25% since we first purchased the stock in October 2015.

Siegfried has several plants around the globe located in Switzerland, China, Pennsylvania, California, Europe, and Malta. Here is a list of the products that the company manufactures. All of these drugs are off patent. You will probably recognize painkillers like Oxycodone and Morphine. Stimulants like Caffeine. Methadone used for drug addicts. A few years ago, Siegfried purchased Hameln which is its retail drug division. Hameln manufactures drugs like Sertraline, Diazepam and Ketamine.

Our original thesis on the company is that the stock trades cheaply relative to its peers. We've always kept it simple and looked at the price to sales ratio. Siegfried trades at a 1.41. This is not as cheap as when we first purchased the stock but still cheap relative to its peers. Dr. Reddy's (NYSE:RDY) trades at a price to sales ratio of 3.21. Mylan (NASDAQ:MYL) trades at 2.03. Siegfried does trade in line with Mallinckrodt (NYSE:MNK) which trades at 1.43. Also Teva (NYSE:TEVA) trades at 1.56. Teva's stock has really gotten hit.

Siegfried purchased BASF's ingredients division and the stock barely moved. This purchase dramatically increased sales. When Siegfried gets passed all of the expenses and charges related to the purchased, earnings per share should increase.

You can see that Siegfried's stock price appreciation and the depreciation of its peers is starting to make its stock trade in line. Still, we are holders. The company's drugs are used every day all over the world. If you visit an emergency room or have surgery, you are likely to use these tried and tested pain killers. Another scenario is that Siegfried keeps making purchases as it has. It has tucked in several divisions through M&A over the last few years. This too could drive the stock price.

Disclosure: I am/we are long SGFEF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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