Galderma's Secondary ABO and Share Buyback Strategy: A Masterclass in Capital Allocation for a Premium Dermatology Stock

In the world of premium dermatology stocks, Galderma (SIX: GALD) has emerged as a standout player, combining scientific innovation with disciplined capital management. The recent Secondary Accelerated Bookbuilding Offering (ABO) and share buyback strategy executed in May 2025 exemplify the company's strategic rigor and confidence in its long-term value proposition. This move, coupled with robust financial performance and a strong balance sheet, positions Galderma as a compelling case study in valuation dynamics and capital allocation efficiency.

The ABO and Buyback: A Calculated Move

Galderma's secondary ABO, led by major shareholders like EQT, ADIA, and Auba, involved the sale of 16.7 million shares (7% of its capital) at a price determined through bookbuilding. The company participated by repurchasing 2.38 million shares at CHF 97.75 each, totaling CHF 232.5 million. This buyback was financed entirely from existing liquidity, ensuring no disruption to strategic priorities. The repurchased shares will be held in treasury for future use—employee incentives, M&A, or further buybacks—while the free float in Galderma's shares rose from 41.8% to 49.8%. This increase in liquidity enhances market accessibility, attracting both institutional and retail investors.

The timing of the buyback was strategic. With Galderma reporting 12.2% year-on-year revenue growth in H1 2025 (net sales of USD 2.448 billion) and 22.7% Core EBITDA margins, the company had ample cash flow to fund the repurchase without compromising its investment-grade balance sheet. CEO Flemming Ornskov emphasized that the move reflects “confidence in our performance fundamentals and shareholder value creation outlook,” a sentiment backed by the company's ability to reduce net leverage to 2.1x while repaying USD 110 million in debt early.

Valuation Dynamics: Justifying the Premium

Galderma's valuation metrics appear elevated at first glance: a trailing P/E of 106.40, a forward P/E of 49.69, and an EV/EBITDA of 41.99. However, these figures must be contextualized within the company's high-margin, high-growth dermatology niche. For instance, Core EBITDA of USD 555 million in H1 2025—up 9.5% YoY—supports a 22.7% margin, far exceeding the industry average. The company's ROIC of 4.39% and free cash flow of USD 671 million over the past 12 months further underscore its ability to generate returns.

The share buyback adds EPS accretion. With a buyback cost of CHF 232.5 million, the repurchase of 2.38 million shares (2.3% of outstanding shares) implies a CHF 97.75 per-share cost, or roughly 97% of the company's intrinsic value per share. This suggests management views the stock as undervalued relative to its fundamentals, a bold signal in a market where many companies shy away from buybacks during volatile periods.

Capital Allocation Efficiency: A Blueprint for Shareholder Value

Galderma's capital allocation strategy is a masterclass in balancing reinvestment, debt management, and shareholder returns. The company has:
1. Repaid USD 110 million in debt early, refinancing USD 1.04 billion in term loans to reduce interest costs.
2. Invested in growth, with Nemluvio® generating USD 131 million in H1 2025, and Relfydess™ expanding to 17 markets.
3. Boosted shareholder returns through a CHF 0.15 dividend and treasury buybacks, while maintaining a debt-to-equity ratio of 0.37 and an interest coverage ratio of 3.47.

The buyback's impact on capital efficiency is profound. By reducing the share count, Galderma enhances EPS without sacrificing R&D or market expansion. For example, the USD 323 million spent on buybacks in H1 2025 could fund a 25% increase in Core EBITDA if reinvested in R&D, but the buyback's EPS accretion (estimated at ~2.5%) is equally compelling. This duality—reinvesting in growth while rewarding shareholders—sets Galderma apart in a sector where companies often prioritize one over the other.

Risks and Considerations

While Galderma's strategy is laudable, investors must monitor potential headwinds. U.S. tariffs and market softness in the Fillers & Biostimulators segment could pressure margins, and the EV/FCF ratio of 50.40 suggests the stock is trading at a premium to cash flow. However, the company's 23% Core EBITDA margin guidance for 2025 and its pipeline (including trials in systemic sclerosis and chronic pruritus) provide a buffer against these risks.

Investment Thesis: A Long-Term Play on Dermatology's Powerhouse

Galderma's secondary ABO and buyback strategy is not just a tactical move—it's a strategic reaffirmation of its commitment to maximizing shareholder value. The company's ability to execute disciplined capital allocation, maintain investment-grade credit, and outperform in a high-margin sector makes it a rare gem in today's market. For investors, the key metrics to watch are:
- Nemluvio's growth trajectory in therapeutic dermatology.
- Core EBITDA margin resilience amid external pressures.
- Share price performance relative to its intrinsic value.

In a market where many premium stocks trade at unattractive valuations, Galderma's buyback at CHF 97.75 implies a discount to its intrinsic value, assuming its 2025 guidance is met. For those with a 3–5 year horizon, this is a compelling opportunity to invest in a company that understands the art of capital allocation—and is rewriting the rules of the dermatology game.

In conclusion, Galderma's secondary ABO and buyback strategy is a testament to its financial discipline and confidence in its long-term prospects. For investors seeking a premium dermatology stock with a proven capital allocation framework, Galderma offers a rare combination of growth, profitability, and shareholder-friendly policies. The question is not whether the company can deliver—it already has—but whether the market will recognize its value before the next phase of its growth story unfolds.