Tesla Falls Foul of ESG
To most people's minds, Tesla is leading the global charge towards a more sustainable future. So why on earth was it removed from the S&P 500's ESG Index, which tracks companies that have good environmental, social, and governance ratings.
Even big polluters like ExxonMobil are on the list!
In this episode, we also discuss:
The shock departure of Under Armour’s CEO Patrik Frisk and what it means for the company's turnaround plans
Our latest thoughts on Eventbrite now that the pandemic restrictions have lifted
And get Elevator Pitches on two companies — Asana and the recently IPO'd Bausch + Lomb.
Bausch + Lomb Notes:
Bausch + Lomb was founded in 1853 by John Bausch and Henry Lomb, both German immigrants. They established a small workshop that produced monocles in Rochester, New York, specializing in vulcanite rubber eyeglass frames. During the civil war, blockades led to sharp increases in the price of gold and European horn, leading Bausch + Lomb spectacles to explode in popularity.
The company went on to produce glass lenses for a number of devices including microscopes and binoculars, as well as projectors, and camera lenses. It then partnered with Zeiss in Germany to produce eyeglass lenses. Beginning in 1914, Bosch + Lomb won a lucrative contract with the United States government to produce lenses for military equipment and eyeglasses for personnel. By 1930, military products represented 70% of total production. Bosch and Lomb founded Ray-Bans in 1936 for pilots.
It was the first company to bring hydrogel contact lenses to the market in 1971. In the 1980s the company began to restructure and move away from eyeglasses. This saw its eyewear division, including Ray-Ban, be sold to Luxottica Group for US$640 million
Bausch + Lomb was a public company listed on the NYSE, until it was acquired by private equity firm Warburg Pincus in 2007. In May 2013, it was announced that Canadian-based Valeant Pharmaceuticals would acquire Bausch + Lomb from Warburg Pincus for $8.57 billion in cash. The deal, which was approved by shareholders, included $4.2 billion earmarked to pay down Bausch + Lomb debt and closed on August 5, 2013.
On May 6, 2022, Bausch + Lomb (eye care) and Bausch Health (used to be called Valeant but the name was dropped after a disastrous expansion plan in 2018) were separated and Bausch + Lomb (eye care) IPO’d. This was done to help manage massive amounts of debt and allow the two companies to be measured on their own. Bausch Health did well throughout the pandemic while eye care struggled
And, almost exactly a year after announcing the eye care spinout, Bausch Health outlined plans for another. Its $300 million aesthetics devices division, Solta Medical, would separately head to the Nasdaq to help further chip away at the company’s past debts and $350 million owed to holders of outstanding senior notes.
Today, the company employs about 21,000 people and manufactures and markets health care products directly or indirectly in approximately 100 countries.
B+L’s business is focused in three key areas:
(50.7%) Global ophthalmic pharmaceuticals products for the treatment of wet age-related macular degeneration (“AMD”), dry AMD, dry eye, glaucoma, diabetic macular edema (“DME”), conjunctivitis, ocular pain and inflammation, other corneal and external eye disorders, other retinal disorders, uveitis, and inherited retinal disorders, and other ophthalmology treatments.
(18%) Global ophthalmic surgical market size includes sales from capital equipment, procedure fees, instruments and implantables.
(31%) Global vision care market size includes sales from contact lenses, lens care solutions, and off-the-shelf eye care products, including sales from eye drops and eye vitamins.
Management is headed by Chairman and CEO Joseph C. Papa, who has been with the firm since May 2016 and was previously CEO of Perrigo Company. He has a long history of senior positions in healthcare industry companies, both private and publicly held.
Gross margin has remained consistent around 50%, as has EBITDA margin around 25%, but net margin is all over the place.
Revenue has been declining since 2020 but I would assume this was caused by Covid and people putting their eye health on the back burner, they’re beginning to see recovery. Even so, in normal times I wouldn’t expect revenue growth to be astronomical, merely steady.
$6.14B market cap with 3.4B in revenue (should be closer to $4 billion by the end of the year). Current PE: 16
Selling, G&A expenses as a percentage of total revenue: 36.9% (bit high)
According to a 2019 market research report by Fortune Business Insights, the global market for vision care was an estimated $125 billion in 2018 and is forecast to exceed $192 billion by 2026. This represents a forecast CAGR of 5.6% from 2019 to 2026.
The main drivers for this expected growth are an increasing incidence of ocular diseases combined with greater access and availability of a variety of vision care options for patients.
In their S1, B+L discuss an aging population, rising middle class, and an increase in diabetes as bullish trends.
Debt-Ridden Origins (Big Concern)
Bausch Health allocated $2.2 billion in net debt to Bausch + Lomb and currently has $130 million cash on hand.
“With the IPO, Bausch Heath will get a quotation for its most promising assets, as the company sold 35 million shares at $18 per share, in an offering in which Bausch Health raised $630 million in gross proceeds. This is 10% of the outstanding share base, and this implies that Bausch Health holds another 315 million shares which are valued at $5.7 billion at the offer price.
Questions and Concerns
Lots and lots of competition, especially in the Global vision care market: Allergan, Alcon, CooperVision, JNJ Vision, Santen, VISTAKON, Novartis, Pfizer, Roche, Aerie Pharmaceuticals, Laboratories Thea, AMO, Carl Zeiss, Generics.
Had a look at the most popular contact lens brands and B+L products were not on the list. Unclear moat, competing for eye doctor’s attention.
A lot of its value proposition seems to rest upon its R&D and experience in the field. Their IPO documentation discusses how they have over 100 new products in the pipeline, I just don’t know enough about all the eye care areas they cover to comfortably say they’re the best.
Debt and attachment to Bausch Health is a huge red flag.
Anne Marie's Verdict:
While Bausch + Lomb has a really interesting history and is obviously a big name in eye health care, there is too much competition in this market to make me interested. On top of this, its status as a spin-off company, significant portion of debt, and unalienable ties to Bausch Health pose serious risks. I’ll be steering clear of B+L for a long while.