According to the British investment bank HSBC, it is the decisive price driver for both company shares. In view of this central similarity, however, the valuation gap between the shares of the two online pharmacies is too large – it has even reached an extreme level recently, analyst Christopher Johnen wrote in a study available on Friday. This creates opportunities.
The market is too negative for DocMorris and too optimistic for Shop Apotheke Europe NV. Anyone who believes in the potential of the e-prescription is now in the right place with DocMorris, Johnen added. That doesn’t mean that the shop pharmacy isn’t well positioned, but DocMorris is no longer as weak as many people still believed. Although a valuation discount for DocMorris compared to the shop pharmacy is justified, this has meanwhile become surprisingly large.
Therefore, the HSBC analyst upgrades DocMorris from “Hold” to “Buy” and increases the target price slightly to CHF 52. The shop pharmacy, on the other hand, was downgraded from “Hold” to “Reduce”, but the price target was raised from 55 to 72 euros.
The shares then drifted apart for a short time, but finally both gave way significantly: The papers of the shop pharmacy went down by 4.6 percent to 92.52 euros, the shares of DocMorris turned negative in Switzerland and lost 5.4 percent to 30 francs.
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Johnen argues that investors have recently jumped too much on the good news about shop pharmacies. Among other things, he mentions the upcoming promotion to the MDAX on June 19 and the most recent cooperation with Galenica. Around a month ago, the competition authorities approved the joint venture with the Swiss healthcare provider. The share price of the shop pharmacy has meanwhile overshot the fundamental data, according to Johnen.
At the same time, many investors would see the problems at DocMorris as permanent, while the analyst classifies them as only temporary. The main problem is the weak balance sheet, which has become unnecessary with the recent sale of the Swiss business. The sale should make DocMorris “largely debt-free” and flush around 360 million francs into the coffers, as the company announced in February.
Since this sale, it has been clear that DocMorris is concentrating on the German market, where the Swiss also made the majority of their sales last year. According to Johnen, a gradual improvement in operating performance towards the end of the year should remind the market that Germany is still a duopoly and that shop pharmacies alone are not the only ones that play an important role.
HSBC classifies stocks as “buy” if the price target is more than 20 percent above the current price. If the target is between 5 and 20 percent above the current price, the rating can also be “Hold”. HSBC classifies stocks as “Reduce” if the price target is more than 20 percent below the current price. If the target is between 5 and 20 percent below the current price, the classification can also be “Hold”.
UBS downgrades DocMorris
The major Swiss bank UBS has lowered the price target for DocMorris from 43 to 27 francs and left the rating on “Sell”. The lowering of the target reflects the fact that e-prescriptions will not be introduced in Germany so quickly, wrote analyst Sebastian Vogel in a study published on Friday. However, the electronic prescription is extremely relevant for the mail-order pharmacy’s prospect of gaining market share in the German market for prescription medicines.
The DocMorris share temporarily lost 2.46 percent to CHF 30.92 in Swiss trading, while the Shop Apotheke share also fell 10.33 percent to EUR 86.94 in XETRA trading.
LONDON (dpa-AFX)
Image source: Shop Apotheke, Tobias Zeit 2016 / DocMorris, Ralf Liebhold / Shutterstock.com