The seemingly endless remodeling of the Bayer-Group (WKN: BAY001) continues. After the acquisition of Monsanto a few years ago, with which Bayer accumulated a huge mountain of debt, there was a whole series of sales of individual parts of the group. The latest chapter in this never-ending story is the sale of Bayer’s Environmental Sciences business, which is expected to generate $2.6 billion.
Bayer can definitely use the billions. Debt reduction is simply not progressing. In the last financial year, net debt increased by another almost €3 billion to €33 billion.
Bayer suffers from low profitability
The main reason for this is weak profitability. In the last fiscal year, net profit was just €1 billion, or €1.02 per share. That’s not even enough to finance the dividend of EUR 2.00 per share. It’s no wonder, then, that debt is headed in exactly the wrong direction.
The result was again weighed down by provisions for legal risks amounting to 3,600 million euros. But such provisions are almost the rule at Bayer.
Unfortunately, it doesn’t look like Bayer will be making any significant progress in the near future. The group expects sales to increase by around 5% to €46 billion. And the result adjusted for special effects is also expected to increase by a similar amount. But in view of the significant special effects that Bayer reports year after year, one has to wonder how much this forecast is really worth. After all, in the last financial year, the result without these special effects was more than 7,000 million euros.
The mountain of debt grows and grows
Free cash flow is also expected to increase to €2.0-2.5 billion. That’s enough to finance the dividend. And that is precisely why the debt will continue to rise. Given these numbers, it’s no surprise that Bayer’s shares haven’t moved anywhere for years. Currently, at EUR 55.37, a share costs around 20% less than it did before the pandemic started (as of March 11, 2022).
Going back even further and looking at the stock price action since the Monsanto acquisition, the picture is even bleaker. At that time, a share cost more than 100 euros. Last year, this increasingly somber development also had an impact on the dividend. At EUR 2.00, it is back at the 2012 level, as it was last year.
In general, Bayer still has a lot of work to do. In order to pay off the enormous mountain of debt, new sales of profitable business areas could be pending in the coming years. Times are likely to remain tough for shareholders as well. Because low profits and high debt keep the stock price on the ground.
The article shared by Bayer: where will the journey go? first appeared in The Motley Fool Germany.
Dennis Zeipert does not own any of the shares mentioned. The Motley Fool does not own any of the shares mentioned.
Motley Fool Germany 2022