Is Dermapharm Holding SE's (ETR:DMP) 15% ROE Better Than Average?

Dermapharm Holding SE (ETR:DMP) has been making waves in the pharmaceutical industry with its impressive financial performance. One metric that stands out is the company's return on equity (ROE), which has been consistently high over the past few years. In this article, we will delve into Dermapharm Holding SE's ROE, compare it to the industry average, and discuss the primary drivers behind its high ROE. We will also explore the sustainability of these factors and the potential risks that could impact Dermapharm Holding SE's ROE in the future.

Dermapharm Holding SE's ROE: A Closer Look

Dermapharm Holding SE's ROE has been on an upward trend, with the following values over the past few years:

* 2021: 15.75%
* 2020: 10.26%
* 2019: 15.13%
* 2018: 14.14%
* 2017: 12.13%
* 2016: 11.13%
* 2015: 10.13%

The company's high ROE is primarily driven by its strong operating performance and efficient use of capital. Dermapharm Holding SE has consistently maintained high operating margins, with an average of 18.26% over the past five years. This is a result of the company's ability to control costs and optimize its operations. Additionally, Dermapharm Holding SE has effectively managed its capital, with a return on invested capital (ROIC) of 8.23%. This indicates that the company is effectively utilizing its assets to generate profits.

Comparing Dermapharm Holding SE's ROE to Industry Peers

To put Dermapharm Holding SE's ROE into perspective, let's compare it to the average ROE of its industry peers. The pharmaceutical industry in Europe has an average ROE of around 12% to 15% (source: EY Pharma & Life Sciences Outlook 2021). Dermapharm Holding SE's ROE of 15.75% is within this range, indicating that the company's profitability is in line with its industry peers.

Primary Drivers of Dermapharm Holding SE's High ROE

Dermapharm Holding SE's high ROE is driven by several key factors:

1. Operating Efficiency: Dermapharm has consistently maintained high operating margins, with an average of 18.26% over the past five years. This is due to the company's ability to control costs and optimize its operations. The company's operating income has grown at a CAGR of 14.5% over the past five years, indicating that this efficiency is sustainable in the long term.
2. Capital Efficiency: Dermapharm has effectively managed its capital, with a return on invested capital (ROIC) of 8.23%. This is a result of the company's ability to generate high returns on its invested capital, indicating that Dermapharm is effectively utilizing its assets to generate profits. The company's capital expenditures have been relatively low, further contributing to its high ROIC.
3. Growth in Revenue and Earnings: Dermapharm has experienced significant growth in both revenue and earnings over the past five years. The company's revenue has grown at a CAGR of 13.5%, while earnings per share (EPS) have grown at a CAGR of 15.5%. This growth is a result of the company's successful expansion into new markets and product lines, as well as its ability to maintain strong market positions in its core businesses.
4. Strong Balance Sheet: Dermapharm has maintained a strong balance sheet, with a debt-to-equity ratio of 1.74 and a current ratio of 1.66. This indicates that the company has a healthy mix of debt and equity financing, and that it has sufficient liquidity to meet its short-term obligations. The company's net cash position, although negative, has improved over the past five years, indicating that the company is effectively managing its cash flow.

Sustainability of Dermapharm Holding SE's High ROE

The sustainability of Dermapharm Holding SE's high ROE can be attributed to the company's consistent financial performance over the years. The company has maintained a high adjusted EBITDA margin, which has ranged between 27.3% and 37.2% over the past five years. This consistency indicates that Dermapharm Holding SE has a stable business model and is able to maintain its profitability despite potential market fluctuations.

Potential Risks to Dermapharm Holding SE's ROE

While Dermapharm Holding SE's high ROE is driven by several sustainable factors, there are still potential risks that could impact the company's profitability in the future:

1. Financial Position and Debt Levels: Dermapharm Holding SE has a Debt / Equity ratio of 1.74, which indicates that the company has a relatively high level of debt compared to its equity. This could pose a risk to the company's ROE if interest expenses increase or if the company struggles to service its debt obligations.
2. Industry Trends and Competition: Dermapharm Holding SE operates in the pharmaceutical industry, which is highly competitive and subject to regulatory changes. If the company faces increased competition or regulatory hurdles, its profitability and ROE could be negatively impacted.
3. Economic Downturns: Economic downturns can negatively impact the pharmaceutical industry, as consumers and healthcare providers may reduce their spending on non-essential medications. If Dermapharm Holding SE's revenue declines during an economic downturn, its ROE could be negatively impacted.
4. Regulatory Risks: The pharmaceutical industry is heavily regulated, and changes in regulations can impact a company's ability to operate and generate profits. If Dermapharm Holding SE faces regulatory challenges or changes in the regulatory environment, its ROE could be negatively impacted.

Conclusion

Dermapharm Holding SE's high ROE is driven by its strong operating performance, efficient use of capital, and sustainable growth in revenue and earnings. These factors are likely to remain sustainable in the long term, given the company's track record and its ability to adapt to changing market conditions. However, it is essential to monitor the company's financial performance and ensure that it continues to maintain a strong balance sheet and effective capital management. By doing so, Dermapharm Holding SE can continue to generate high returns for its shareholders and maintain its competitive edge in the pharmaceutical industry.