Valuation of Sanofi: Considering the Effects of CSR

Hadi Güngørdu & Fawaad Abdul Jabar

Student thesis: Master thesis


The aim of this thesis is to find the intrinsic value of Sanofi’s shares as of 7th of February 2018. Furthermore, this thesis also aims to investigate whether CSR performance has an impact on the valuation by examining the existing literature within the field of CSR and firm performance. Today, Sanofi is one the leading pharmaceutical firms in the world as well as being among the best performing firms in terms of CSR. The existing literature on CSR and firm performance has in many studies shown a positive relationship, but numerous studies has also found a neutral and insignificant relationship, which highlights the inconclusiveness in the literature. The analysis of the value creation for key stakeholders in the pharmaceutical industry showed that the positive effects of CSR on firm performance was non-existent. Hence, this thesis assesses that the effects of CSR on firm performance in the pharmaceutical industry is insignificant and irrelevant, and therefore have no effect on the valuation. To estimate the intrinsic value of Sanofi’s shares, a comprehensive analysis of Sanofi was performed from both a strategic- and financial standpoint. The strategic analysis included a PEST and a GE/McKinsey analysis. The PEST analysis highlighted the most influential macroeconomic factors, whereas the GE/McKinsey analysis revealed the industry attractiveness and Sanofi’s competitive position within each of their healthcare areas. Macroeconomic factors that were assessed to have the greatest impact on the industry were the increasing pricing pressure from payers and demographic changes, such as an aging population and an increased prevalence of obesity that increases demand for treatments. Furthermore, the GE/McKinsey analysis revealed that Sanofi was positioned strongest within Vaccine and Specialty Care, while also having a strong presence within Diabetes and Consumer Healthcare. Sanofi’s weakest position was within Established Products, due to very tough generic competition and a lack of competitive advantage. Overall, all the different healthcare areas have a positive outlook due to the above-mentioned socio-cultural trends. The financial analysis investigated the historical performance of Sanofi from 2013-2017 and revealed that the overall performance has been enhanced. The revenue has increased each year on average along with an overall improvement in ROIC despite a decrease in 2017. The recent decrease in ROIC was mainly due to the increased costsrelated to the acquisition of a new division. Furthermore, NOPAT was also affected negatively by a considerably higher tax expense in 2017, which was a consequence of the new US tax reform. Ultimately, the strategic- and financial analysis was used a foundation for the 10-year forecast of Sanofi’s performance. The conducted forecast was then incorporated in the DCF- and EVA valuation models, which yielded an estimated share price of 70.1 euro as of 7th of February 2018, indicating that Sanofi’s share price was undervalued by 5.1% at the valuation date. However, the estimated share price is sensitive to changes in selected variables, with the WACC having the biggest impact. Therefore, the estimated price relies heavily on the different assumptions made. Conclusively, the estimated share price was deemed realistic, as it falls within the range of estimates from numerous investment banks

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2018
Number of pages139
SupervisorsSvend Peter Malmkjær