These are difficult days for Stada. The announcement that it was taking a further write-down of receivables in Serbia of close to €100m – equivalent to more than a year of Serbian sales – led to a 19% decline in the company’s share price on the day. Further drops since have reduced Stada’s market cap to below €1bn, its lowest level for more than two years. What makes the situation worse is that Stada’s payment problems in Serbia are very much of its own making, as they largely result from it having partnered with unreliable wholesalers. It is also concerning that the company is making further write-offs now, well over a year since it first became obvious that things were going wrong in the Serbian market, suggesting that it still hasn’t really got a grip on the situation.
Apart from being depressing for shareholders, Stada’s low market cap makes it increasingly difficult for the company to issue new shares, which in turn limits its ability to make acquisitions. Indeed, there may be some connection between Stada’s shrinking capitalisation and its rumoured recent withdrawal from the sale process for a package of GSK OTC brands, since buying these would certainly have required shareholders to put up new money. Not that purchasing a large pan-European portfolio of elderly OTC brands would necessarily have been a good idea anyway. Although Stada does have an existing OTC operation, it does not extend much beyond Germany, so the company would have had to make a big investment into people and infrastructure to support the GSK products, which would have put a lot of strain on a management team that already appears to be thinly stretched.
But if Stada can’t do deals, its options become rather limited. The business is showing some growth (outside Germany, at any rate), but cash generation is weak, so it will be painfully slow to pay down its c€1.2bn of debt by this means alone. It is also hard to escape the conclusion that Stada lacks any coherent growth strategy; certainly, there doesn’t seem to be much joined-up thinking between signing a development agreement for biosimilar monoclonal antibodies one week and considering a deep dive into mature OTC products the next. Instead, the impression given by the company is that it would prefer to be taken over so that someone else could make the decisions, an event that would land the management team with a handy cash windfall as well as possibly proving a relief for shareholders. And from this perspective, maybe a low share price isn’t such a bad thing after all.
Posted on 30th September 2011