Philips’ share-price revival is only half finished
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to fix typos in third and sixth paragraphs.
By Karen Kwok
LONDON, July 29 (Reuters Breakingviews) -Roy Jakobs’s job is only half done. The CEO of Dutch medical group Koninklijke Philips PHG.AS has managed to get the order book growing again, but the company’s share price is still trading well below its 2021 peak, before a recall of faulty sleep aids that tanked the stock. Jakobs may be able to give Philips an extra breath of life by selling off the consumer division.
Philips’ shares showed signs of life on Monday after some encouraging second-quarter results. Comparable order intake, which is the 25 billion euro company’s key measure of expected future revenue, grew 9%. It was the first time in about two years that the number was meaningfully positive. Jakobs’s cost-cutting programme, meanwhile, is working. Its operating margin, which Philips adjusts to exclude amortisation, was 11.1% compared with analysts’ expectations of 9.8%. The shares rose by a tenth.
It’s just the latest win for Philips, which surprised investors in April by settling some sleep-device legal claims for $1.1 billion, which was less than some shareholders feared. A 15% stake purchase last August by Exor, the investment vehicle of Italy’s Agnelli family, also arguably helped restore confidence.
Still, Philips is miles behind where it could have been absent the sleep-apnoea problems. Even after Monday’s pop, its shares are down 44% since their peak on April 9, 2021 – shortly before the troubles started. Closest peer Siemens Healthineers SHLG.DE, which also makes medical equipment like MRI machines, is up 14% over the same period.
Clearing house could help. The 133-year-old conglomerate has slimmed down considerably in recent decades, spinning off businesses including chip giants ASML ASML.AS and NXP Semiconductors NXPI.O, as well as lighting specialist Signify LIGHT.AS. But there’s still a sum-of-the-parts discount on the shares.
Its diagnosis and treatment business alone, for example, will generate 1.3 billion euros of EBITDA this year by selling products from ultrasound to X-ray machines, according to Visible Alpha consensus estimates. On the same 16 times forward multiple as Healthineers, it alone would be worth almost 22 billion euros – enough to account for almost the entirety of Philips’ own 29 billion euro enterprise value. That implies negligible worth for the other three units, which will produce EBITDA of 1.8 billion euros this year, analysts reckon.
Selling or spinning off the personal health division, which makes toothbrushes and breast pumps for consumers, could help. It has the least relevance to Philips’ core of selling critical machines to hospitals. Barclays analysts reckon the unit’s listed rivals trade at 13 times 2024 EBITDA on average, implying a 9.6 billion euro enterprise value for the business. For Jakobs, unlocking some of that trapped value would go a long way towards getting Philips back to full health.
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CONTEXT NEWS
Koninklijke Philips on July 29 said that its comparable order intake growth, a measure of future revenue that’s adjusted for currency fluctuations, was 9% in the second quarter of 2024. Before that, it was negative or flat for the previous two years.
The Dutch medical-device maker’s shares rose 10.45% to 26.22 euros as of 0913 GMT on July 29.
Philips’ shares trailed Siemens Healthineers since 2021 peak https://reut.rs/3yhtGCU
Editing by Liam Proud and Streisand Neto
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