Originally posted on reddit
https://www.reddit.com/r/MicrocapVillage/comments/n9ryl0/another_spinoff_organon_and_co_from_merck/
Spinoff date: 2021 Q2.
This can be a potentially good spinoff. **Notice: the company has not spun off yet.
The company is great, I don't know if we can get it at a cheap valuation. I don't know if there is going to be too much forced selling because the market cap won't be too low.
This company is being spun off from Merck & Co. pharmaceutical company. They are spinning off their women's division.
Business description from 10-12b:
The Organon Products segment is engaged in developing and delivering innovative health solutions through its portfolio of prescription therapies within women’s health, biosimilars, and established brands (Organon Products). The Company sells these products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. The Company expects to operate six manufacturing facilities in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United Kingdom (UK).
The Organon Products segment portfolio includes:
• Women’s Health: the Company has innovative contraception and fertility brands, such as Nexplanon/Implanon, a long-acting reversible contraceptive, a class of contraceptives which are recognized as the most effective type of hormonal contraception available to patients with a lower long-term average cost.
• Biosimilars: the Company’s current portfolio spans immunology and oncology treatments. All five of the biosimilars in Organon’s portfolio have launched in certain countries globally, including two biosimilars in the United States.
• Established Brands: the Company has a portfolio of established brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management.
Financials, only: I encourage you to look at it before I talk about it.
Income Statement.
Balance Sheet.
Cash flow statement.
Summary
1) Income statement:
You will notice that revenues are declining. I am very surprised, almost laughing, at why they would want to give the impression that this is a declining revenue business. This makes me want to buy the stonk more. What will be most telling is if insiders buy stonk (open market transactions.)
Normalized operating income (not net income) is $2600MM.
2) Balance sheet:
$10B in assets, of which $5B is goodwill (50%). No cash. Current assets is higher than current liabilities. Total liabilities is $4.5B. Kind of a lot, but I am pretty sure they can pay it off. In fact Debt/EBIT = 2. They can pay it off in two years. That is cheap!
I have no problem with goodwill, as long as it has earnings power!
3) Cash flow statement:
There is very little depreciation and amortization and capex, so I am going to ignore it. We can just focus on EBIT for now.
BUT. They have a lot of goodwill to write off. That is good.
Valuation:
I like cheap things. But because it is a pharmaceutical company and they have pricing power (moat), I can pay up. I am willing to pay for P/E = 8, no more. I am ignoring debt because it's so small and they can pay it off in two years. Therefore I want this stock to be 2600*8 = $21B market cap.
You see how big this company is? There isn't going to be much forced selling.
As usual we will be keeping our eyes on insider buying and how much management owns.
Notice:
You will realize I never do comparable analysis. Comparable analysis is gay. I don't care what the fool next to me is willing to pay for this business. When I buy stonk, I imagine that I buy the entire business (private equity.)
Again, this is just scratching the surface. We need to identify what drugs they have and identify their useful lifespan (patents, competitors, application, etc...). Financial analysis is not enough. We need to read the entire form 10-12B. Put your comments/thoughts below.
