What is BION.SW's Intrinsic value?

BB Biotech AG (BION.SW) Intrinsic Value Analysis

Executive Summary

As of May 31, 2025, BB Biotech AG's estimated intrinsic value ranges from $35.98 to $42.22 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $40.70 +38.7%
Discounted Cash Flow (5Y) $42.22 +43.8%
Dividend Discount Model (Multi-Stage) $41.54 +41.5%
Dividend Discount Model (Stable) $35.98 +22.6%

Is BB Biotech AG (BION.SW) undervalued or overvalued?

With the current market price at $29.35, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate BB Biotech AG's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 1.0% 1.5%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.82 0.89
Cost of equity 5.2% 7.4%
Cost of debt 5.0% 5.0%
Tax rate 0.0% 0.0%
Debt/Equity ratio 0.07 0.07
After-tax WACC 5.2% 7.2%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $112 (FY12-2024) to $200 (FY12-2034)
  • Net profit margin expansion from 68% to 68%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $42 $2,456M 89.3%
10-Year Growth $41 $2,372M 72.1%
5-Year EBITDA $11 $733M 64.1%
10-Year EBITDA $17 $1,071M 38.3%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 144.5%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.3%
  • Long-term growth rate: 2.0%
  • Fair value: $41.54 (41.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.4% (Low) to 5.2% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $15 to $57
  • Selected fair value: $35.98 (22.6% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $1626M
Enterprise Value $1743M
Trailing P/E 21.42
Forward P/E 17.62
Trailing EV/EBITDA 5.65
Current Dividend Yield 687.50%
Dividend Growth Rate (5Y) -12.64%
Debt-to-Equity Ratio 0.07

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 33% $12.21
Discounted Cash Flow (5Y) 28% $10.55
Dividend Discount Model (Multi-Stage) 22% $8.31
Dividend Discount Model (Stable) 17% $5.40
Weighted Average 100% $40.52

Investment Conclusion

Based on our comprehensive valuation analysis, BB Biotech AG's weighted average intrinsic value is $40.52, which is approximately 38.1% above the current market price of $29.35.

Key investment considerations:

  • Strong projected earnings growth (68% to 68% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.07)

Given these factors, we believe BB Biotech AG is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.