Sartorius AG and Sartorius Stedim: 2023 Reset Period Steepening
Management at wide-moat companies Sartorius AG SRT3 and its bioprocessing subsidiary Sartorius Stedim DIM significantly reduced 2023 guidance, as demand for their life science tools have softened in the wake of small biopharmaceutical funding concerns, general macroeconomic uncertainty, and tough comparable periods in which some purchases may have been pulled forward. Considering those factors, we have significantly reduced our near-term assumptions and are reducing our fair value estimates on both companies by the mid-single digits on a percentage basis. While shares of both firms were trading in roughly fair territory prior to this announcement, we suspect they may decline substantially on this news. If shares wind up trading at significant discounts to our new fair values, we think investors with a long-term horizon may see such weakness as an opportunity to obtain shares in these growth companies at reasonable prices.
While profits are resetting after the heady growth experienced during the pandemic years, we suspect share performance may eventually improve if their growth trajectories normalize after a tough 2023. For example, both management teams reduced their guidance for 2023 substantially but maintained their 2025 goals. Specifically for 2023, both companies now expect low-to-mid-teens percentage declines in sales (from low-single-digit growth previously) and EBITDA margin contraction to about 30% (from 34% for Sartorius AG and 35% for Sartorius Stedim in 2022), which will cause an even steeper drop in profits.
In the long run though, the companies goals and prospects look largely unchanged. The Sartorius companies look well-positioned to benefit from expected biopharmaceutical growth, including a focus on large molecule drug manufacturing tools that should benefit from both relatively high growth (compared with toolmakers more exposed to small molecules) and durable switching costs (compared with toolmakers more exposed to initial research applications.)
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.