UBS downgraded Galenica AG to a sell rating from neutral on Tuesday and reduced its 12-month price target to CHF86 from CHF85. The bank said Galenica’s current market price of CHF101.80 already reflects a growth and margin outlook that UBS views as too optimistic, a stance that coincided with shares falling by more than 5%.
Analysts Sebastian Vogel and Joern Iffert at UBS argue that the stock price implies high-single-digit sales growth and a rise in EBITDA margins to the 10-11% range over the medium term. UBS’s baseline view is considerably more conservative, with projected low-single-digit revenue growth and EBITDA margins of 8-9%. "Galenica’s current share price discounts a too optimistic scenario going forward," the note said.
On dividend and valuation metrics, UBS points out that its FY27 dividend yield estimate of 2.6% is 14% below Galenica’s nine-year average of 3.1%. The company is trading at an EV/EBIT multiple of 21x on a next-12-month basis, which UBS highlights is a 29% premium to European specialised healthcare distribution peers and a 39% premium to U.S. drug wholesale peers.
Regulatory change and pricing pressure
A central downside risk identified by UBS is the planned liberalization of Switzerland’s rules on OTC drug shipments, expected by FY29. Under current Swiss regulation, consumers must hold a prescription to order certain OTC products from online pharmacies, a restriction that limits aggressive online price competition.
UBS’s Evidence Lab data points to an existing pricing gap in Germany, where online pharmacies such as DocMorris and Redcare offer 20-25% discounts on OTC items compared with standard retail prices. UBS expects a similar pricing dynamic to emerge in Switzerland once deregulation takes effect.
Roughly 15% of Galenica’s stationary retail revenues are tied to OTC products. Because Galenica keeps the same pricing online and in physical stores for OTC items, UBS says any migration of discounted online pricing to Switzerland would hit the company’s top line directly. Galenica’s 49%-owned joint venture with Redcare’s Swiss online pharmacy provides some mitigation, but UBS notes the JV operates at lower margins than Galenica’s other businesses.
Financial projections
UBS forecasts group revenues rising from CHF4.14 billion in FY25 to CHF4.66 billion in FY28, followed by a decline of 3.4% to CHF4.50 billion in FY29. The bank expects organic growth to turn negative at 3.6% in FY29.
On profitability, UBS sees EBIT margins peaking at 6.3% in FY28 before easing to 6.0% in FY29. Diluted earnings per share on a UBS basis are projected at CHF3.55 in FY25, increasing to CHF4.64 in FY28 and then falling to CHF4.29 in FY29. Net debt is forecast to widen to CHF692 million in FY25 and then reduce to CHF577 million by FY29.
Scenario outcomes and near-term outlook
UBS lays out an upside scenario at a CHF119 price target, which it says is 17% above the Feb. 23 close. That upside case assumes average sales growth of 5.5% and average EBIT margins of 9% for FY27-30, with limited impact from OTC deregulation. Conversely, the downside scenario is CHF61, implying 40% downside, and assumes a 2% average sales decline for FY27-30 with EBIT margins compressing to 3.2%. UBS calculates an upside-to-downside ratio of 1 to 2.4.
Galenica is scheduled to report FY25 results on March 10. UBS does not expect that release to act as a near-term catalyst, noting its EBIT estimate of CHF236 million is in line with consensus at CHF232 million and company guidance.
Implications for investors and affected sectors
- Healthcare distribution and retail pharmacy operators in Switzerland face potential margin and revenue pressure if online OTC pricing liberalizes.
- Investors should weigh Galenica’s current valuation premium against UBS’s more conservative growth and margin outlook.
- Specialised healthcare distribution peers in Europe and U.S. drug wholesalers are used as valuation comparators in UBS’s analysis.