Transcription
You are listening to the investment podcast with Hansen and Larsen. The place where private investors are updated week after week on investment trends at eye level. Welcome to the investment podcast with Hansen and Larsen. Episode 317. We will talk about share buybacks and short-term price impact. We cannot avoid updating on the USA, on oil prices, what has happened, and what may happen in the slightly longer term. And then I have to say, Helge, I am somewhat surprised that the battle between Novo Nordisk and Eli Lilly, when it only concerns the pill form, is so one-sided in Eli Lilly's favor, when that is how we see it from an analyst's perspective. >> Yes, completely. I totally agree. It is quite, it is quite a mysterious undertaking, that. >> We will return to that much more at the end of today's episode. One of those things that I sometimes get a message about, Helge, is how can it actually be that when, for example, Novo Nordisk has started a share buyback program of 15 billion Danish kroner, it does not have a greater impact on the share than is the case. And that is a good opportunity to refresh or explain a little about the rules of the game. It is like this, if we look at the last 20, 30, 40 years, then the average holding period, where an investor buys a share and still owns it. That has completely collapsed. Or in other words. What investors do is they buy and sell much, much more frequently than they have historically. And what matters is either if there is momentum in the share price or if there is a good, uh, if there is good sentiment or momentum in earnings expectations. If earnings expectations go up, then analysts' expectations go up, and then investors buy more shares at higher prices. If earnings expectations go down, and that is the case for Novo Nordisk, well, then it can be that a share buyback can be a mitigating circumstance in the short term in relation to the number of shares offered for sale, so it presses the share more in the short term. We are not talking about the long term, but in the short term, it presses the share more than the share buyback does. Yes, that is a long explanation, but in short, it is like this, it is supply and demand, that is what drives the price of a share. And if there are many who are selling, then there must also be many who are buying if you want to keep it in balance, or if it is to go one way or the other. And in this case with Novo Nordisk, there are more who are willing to sell the share than there are to buy it. And regardless of the fact that there is support for the share via a share buyback, well, the selling pressure is so great that you get a negative development. You could say, if a share, regardless of the reasons whether it is financial statements or other technical or something, if a share is in an upward trend, well, then the share buyback helps this upward trend. If it is in a negative trend, then you really need many times a very large share buyback to reverse such a negative trend. And we see it in all shares, and it has been done over the years, that if things are not going very well for the share, for the company, and the future prospects look bleak, well, then the share buyback must be a very high amount to be able to support the share properly. Most recently, we have seen it at Investor in Genmab, where there have been various rounds of share buybacks. Well, that has supported it to a certain extent, but the share has still maintained its negative trend for a long time. It has since reversed, but but it happens, Per, and that's how it is. Buying and selling and yes, supply and demand, that's what drives it. >> It is like this, one does not do a share buyback program to push the share up. One does a share buyback program because it is the best way to create value in the long term. So if one imagines that the opposite were the case, then it would be like this, that one says, no, then it is probably not 15 billion in Novo Nordisk, then it is maybe 100 billion Danish kroner, then we are in a completely different category, which has no relation to cash flow, to debt, and to creating value in the long term. So it is important to say, one does not do a share buyback to push a share up in the short term, but one does a share buyback because it is the best way to create value in the long term, because one believes that the company is doing well in the long term. And if we imagine that Novo Nordisk's share price in five years, instead of 242, is rather 342 or 542 or whatever one could imagine, then it is clear that if one has used some of its available capital or slightly changed its capital structure, then buying at 242 is a very good idea if the share later is 542. That is exactly the example we have used many times, where we want companies that are actually doing well, but where investors are impatient, and the valuation is not just low or very low, but extremely low. That is where a company can signal that it is trying to create value. >> Yes, you can actually say it is a kind of insider purchase, isn't it? >> Legalized insider buying. Uh, we must give the example with Maersk. >> That was a bit, that was a bit what I was fishing for. >> Yes. Yes. Yes. I thought so, because with Maersk, I have been involved in the ups and downs with Maersk a few times, and then I have wondered why they do share buybacks at the peak. Uh, that is not exactly by the book. What do you have to comment on that? Besides that, >> well, I have tried to ask if there is a merchant in the room. And that is because, when you look at a business that is very cyclical, meaning when things are going very well, there are many ships at sea. Those ships at sea are fully loaded. When the ships at sea are fully loaded relative to competitors, then the rates are high. When the rates are high, then the bottom lines boom. When the bottom lines boom, then the share prices boom. And when the share prices boom in a business that is very cyclical, where you are on the wave, and then you are down again, then you have to ask yourself. whether it is a good idea to buy at those times when earnings are booming, when in a cyclical business you know it will go down again. That is a bit where I ask, is the merchant in the store ready to receive customers in the best possible way with the best product offering? >> One can say, they are a bit more like merchants at Novo Nordisk right now. That was the example you started with. They probably are, because they are buying at what they consider the bottom. And many others are probably doing that right now. And if we were to update that, some of what I have been after, Helge, is that I think it was a bit sad to see Pandora say that now we have bought back 40% of our share capital since, I think it was 2012. So now we are just pausing it, because we will see how the development is, and whether consumers will welcome that we will start coating the jewelry with platinum instead of silver. That makes me sad. And I am sad simply because if the company itself believes that it is doing well, then when the share price goes from 1400 down to 400, and they believe the long-term future is good, then one must buy shares, and if one is to do something, then one must buy more shares, or else one must change the relative proportion between share buybacks and dividends. >> Yes, that is right. I also caught the Pandora one. And I think maybe there are some reasons. I actually doubt they will succeed with this platinum. That is probably the thing. >> That has, and then they have had some management changes and so on. I I don't know, Per, but but maybe we will get some clarity on it in a couple of quarters. >> We can hope that we will get the resumption of the share buyback already in connection with Q1, and that they have sufficient courage to do these things, and that they have a good earnings outlook. That time, that joy, is at the beginning of May, when Pandora and many other companies release their first-quarter financial statements. Much more about that at that time. I just have to say, the platinum will probably not break through in the first quarter, so >> No, but maybe one will become more convinced about these things. And you, you are completely right. >> Yes. >> We are recording on Wednesday, Helge, and something happened the night before Wednesday in the USA. Donald Trump had issued his ultimatum, I think it was US time, and probably East Coast time, at 8 PM, that Iran should reopen the Strait of Hormuz, and one can say that at the last minute, we got an agreement, or at least a temporary ceasefire for two weeks, which was probably put together by Pakistan with good help from China and some others, saying that now we will at least, for the short term, see if we can stop these hostilities. And that has, well, that has had the natural consequence that the oil price has dropped by about 10 dollars. But it is not a given, Helge, that everything is just fine and dandy and going well. Is it? >> Not at all. There are 10 points there that, and from that, they have to try for strategic reasons. Each of the two parties has to try to make it look like a victory for themselves. And yes, I must admit, the Strait of Hormuz was open before the US started the war. And now it looks like, and I have read a little about these 10 points, it looks like Iran will be allowed to have dominion. They did not have that before. >> Dominion over this, and they are allowed to collect tolls, so that money can then be used for the reconstruction of the country. It is very, very mysterious. What are they thinking about there? So there will be some difficult negotiations. They start already on Friday. And, well, we will have to see what it all ends with. But from my immediate perspective, it is a huge declaration of failure that one goes in and burns so much money and destroys the world economy and the outlook for it going forward with a war. And then one achieves no more than what one had when one sat in London and decided to go to war, where one had a result that was apparently good also regarding this uranium. And it says on these points that they are allowed to enrich it under closer research. We are allowed to enrich it for peaceful purposes. And we know that is a bit of a gray area. And I think that >> that was also what was in those agreements. >> That was also in those agreements. And it is like this, victory is a matter of perspective. Donald Trump says, now he has stopped the war and all that, so I can perhaps add that he has stopped the war he himself started. And in that way, it is a bit of a circular reference. It almost makes me think that in a global world, Helge, if the Iranians are to collect tolls for a basis of an area that is not 100% attributable to them and belongs to them, will the next thing be that Denmark will start collecting tolls for all the ships sailing up through the Øresund, or what? >> Yes, as long as it is Russians, I don't mind. Sorry, but that is a partisan statement, but it is completely out of line. I think it sounds thought-provoking, at least, and it is very much about the rhetoric and the communication that is actually there. So in the short term, Helge, well, it removes some of the extra stress that has been in the system, where oil prices have been at 115-120 dollars in the very short term, and where the physical delivery of some oil has gone even higher. But no matter how you look at it, well, a significant part of the short-term damage has been done to the economy. I know that share prices are something else. First, there is this unrest, share prices are pushed down. And when there is an outlook that something can go a little better, well, investors are immediately there thinking, now we have found a solution. We have not found a lasting solution. We have found a solution where the Iranians say that the Americans must pay war reparations. It could very well be that it will be something with passage through Hormuz that will finance it. I will be very surprised if the Americans pay anything in this regard. And we are at a point, Helge, where there is a risk that this will affect the economy for a longer period. Simply because I don't know if there are 500 or 1000 ships down there, but I can guarantee you that they are neither fully loaded nor in and out within two weeks. >> No, no, they are not. Then there are problems, there are many refinery capacities taken out of operation, and there are all sorts of problems down there right now. There are destroyed installations in OAN, and well, we can just go on. But what has been important, I think, for Asia, and China especially, is that they get a large amount of their oil from Iran, and they want to ensure that they can get it in this situation. And therefore, I think that some fine-tuning has been done around these negotiations for all sorts of people involved in them. >> So when we look at the effect on the markets potentially being greater, well, it is very true, as you say, Helge, this effect is twofold. Firstly, well, the prices are sent down. And that in itself is good for those who buy. And Asia is very dependent on oil imports, and China and India get a significant portion of the oil they get, they get it through the Strait of Hormuz, and they get it from Iran. But the second thing is simply the question of whether there is any oil available at all. So, once the oil prices go up, as they have done, there are two bad things. The first is that it has become much more expensive, and the second is that it has become harder to get. And now oil availability is likely to improve again, with the caveat that these two weeks are just the beginning of something better, it will improve. So it is not surprising that one heaves a sigh of relief simply because if one cannot get the oil that one needs, then growth has received its last oil. >> Yes, well, we must consider that it is oil, it is also gas, LNG gas, that we need to move forward. And then there is all this about meat production and whatever else there is, and there is also helium, yes, which is used in the production of chips, which comes as by-products of oil and gas, right? So Per, I think the prices will remain high for oil, regardless of what happens. It will take some time before that happens. And then Saudi Arabia, with them in Sweden, they will increase production in the places where they can within OPEC. And then I am curious to see what the Russians do in this situation. But Ukraine is doing everything to destroy their oil installations, so even though they have earned a lot of money in a short period, they will probably have a harder time in the future. So something we also hear, and I have actually seen it as late as today, Wednesday, before we record here, is that people are starting to talk about raising interest rates a couple of times and all that to dampen inflation. And that is, that is perhaps natural for some. I think it is too early to look at this, but it is, well, it is unfortunate for investors, because if one wants to try to dampen inflation at a time when rising oil prices are growth-inhibiting, because rising oil prices are a tax on consumption. It is a tax on consumer spending. And what you tax, we have also heard a bit about in an election campaign, you get less of. And in that way, one can say that if it is really the case that central banks, I don't think it will happen at the ECB, but let's just see. I can also be negatively surprised if it is the case that we are already at a point where one could imagine that interest rates will be raised a couple of times in the next three to six months in Europe, and perhaps not be lowered in the US, well, then it means something in the slightly longer term. Besides this immediate reaction in the stock markets and the oil price drop, what does it mean for the rest of 2026. And we should preferably not get into that, Helge. >> No. Well, that is the question with them sitting there with their calculators and thinking, okay, the oil price is rising, well, then prices are rising. There is a multiplier effect on the rest of society, and then we get inflation, and then we get higher wages, and then we had better raise interest rates. I think there are actually some more pragmatic economists who say that is not really the way to do it, because it is an event, one can say, not >> it is an event. It is a supply shock. It is not a structural problem. It can quickly become one if a lot of production facilities for oil and gas are destroyed. But but it is an event, and then one must look the other way from the central bank's side to see how things develop. I would also think so. And I would think that this is completely diametrically opposed to the interest rate cycle we saw unfold in 2021, 2022, and into early 2023, which was driven by monetary policy trying to stimulate the economy for a 10-year period, and then suddenly came Corona, which just made things worse. And that was this monetary policy-driven inflation, which looks completely different from what we see today, and which was completely different from what I, if I can't remember, have read something about in the early 80s. And Paul Volcker and the American central bank chief, who both killed inflation and the American economy with a series of interest rate hikes, which ultimately sent the dollar up enormously. And that sounds completely crazy. But in 1985, when the Plaza Accord happened, a dollar cost, as far as I remember, on the wrong side of 12 kroner, I think it was 12.444 kroner. And today, we are at half that level. And it is actually the case that the dollar is overvalued in terms of purchasing power. For your information, I studied economics at university during that period, and I thought, okay, I know Keynes by heart, but this was a slightly different turn in the understanding of how things should be done or not done. >> Many things have happened since then, and much water has flowed under the bridge since then. We had the energy crisis, where we skated on roller skates in the 70s on the motorways. I remember that well. >> There was the first energy crisis in 73, and then the Iranian revolution came in 1979. I think that is something Donald Trump also communicates a lot about when he talks about it being 47 years since Iran had a different regime. >> Yes. >> Novo Nordisk. We cannot avoid it, Helge. There is I have made a headline over at your place called, much has happened without anything happening. What do I mean by that? Yes, you are thinking of several things, but you are thinking of Lilly coming out with their pill, and then there have been several good things for Novo Nordisk as well for, or Lilly. Well, the FDA has come out with these compounding medicines with further tightening and warnings against them, and yes, then they have received some good cardiovascular indications in England, for which they have received approval in connection with VGI, or was it Semaglutide, I can't remember, but it is Semaglutide after all. And yes, there have been several things, and the price is not moving much. And we have also just received figures again on the pill here. They were delayed due to Easter. And what they see, it looks promising for Novo Nordisk's pill. But no matter what one thinks about this pill and this comparative study, and I would call it a comparison where it is not head-to-head. They have simply tried to compare the results of some studies. What can be concluded from that? What is better, Lilly's pill or Novo Nordisk's, and a press release came out on Thursday, Thursday from Novo Nordisk's side, and nothing happened to the price on the US market at all, but it was very convincing, that press material they have, they have tightened the communication, one can see. So I think it is a blow to Lilly because they have allowed themselves, in the fall and followed up in January, February, to compare their pill with Rybelsus in a weak. >> And that is diabetes. >> Yes, it is diabetes. And it was a very, very small dose. So that, and that was completely off the mark. Nothing happened when Lilly came out with this comparison they had made either. Nothing happened to Novo Nordisk's price at that time because people, analysts could see through this, but I had expected something to happen to the price because of this comparative study that someone and Novo Nordisk have to do. Let's try to decipher the individual figures. You started, Helge, by saying that the FDA is warning about these compounding products, and some of what I have read is that they have found something in these compounding products that is not safe. And in that way, one can say that once the FDA has some documentation that there are products circulating, being distributed, where one cannot be sure that the content of the product corresponds to its label. It corresponds to the instruction manual on it or something, then it is clear, then the FDA has to crack down, and that, Helge, should be the beginning of the end for these illegal compoundings, unless something goes wrong. >> Yes, the wording was quite clear, they used this as justification, that there could be contamination or pollution of this, and that has been found around. But it is just that one is completely sure that Lilly and Novo Nordisk have made an agreement with Trump that this substance must be stopped for both parties, and that is what they are doing, and then they expand the justification for doing it. But one has a law that one may only sell this compounding if there is a shortage of the substance, so that should have been strong enough. >> Yes. >> But now, now it is subject to fines and prison sentences and all sorts of other things to sell it, as I understand it. Before we, we try to come up with what I actually think is the most relevant, namely the difference in the products' efficacy and side effects. Yes. Then I would also say that when we see this broadcast from Novo Nordisk, when we see Novo Nordisk's new American CEO on TV, >> there was a good one, >> then it is a completely different Novo Nordisk than we have seen in the last four or five years. It is a much more offensive Novo Nordisk. It is a much more ready-for-battle Novo Nordisk. It is a much more competitive Novo Nordisk. It is simply a more merchant-like approach to being able to compete in a medical market where, in the USA, you have to stick your chest out and be proud of your products and be able to market them, and then you have to go full throttle. And we have lacked that at Novo Nordisk for a long time. >> Yes. Also, they now see that it is a mass market they are addressing. It is a gigantic mass market, and it is a market where it is about, of course, disease in the highest degree, and Novo Nordisk and Eli Lilly will probably get many customers in the store for that in the future, but they will get even more customers when it starts to be about aesthetics and easy accessibility and all that, then it goes fast. And one of the things that I can Novo Nordisk has not been happy about is that their products should be sold on webshops. >> They have not been. It is not in their core. It is a pharmacy product, it should be sold by pharmacies. Regardless of whether the pharmacies also have webshops. But now they are in a very competitive market where they market the products right to the edge. And Novo Nordisk has simply, well, they have turned around, and then they have gone directly out and said, this is a very, very large sales platform. And Hems, well, they will have come with what they have calculated, that they will handle 100,000 prescriptions per month going forward. They just announced that yesterday or today. Yes. >> And and and that is the future. And I see it myself within the industries I work with. Well, I have argued for many years that I would not sell on the web in that way. But everyone does it today. If we are to try to return to the factors, which are about the Wegovy pill versus Orforglipron. I can hardly say it. >> Then we can think about the tipping point in the study, which they made public. >> Then I think there are four ways to differentiate. The first is weight loss. The second is the side effect profile. The third way is the way the product is taken. And the fourth is, of course, availability and price. And if you look at it, and what Novo Nordisk sends out, and what the data also indicates, Helge, then it is like this, that in the studies, well, in comparative studies, it is like this, that Novo Nordisk provides a weight loss of 3 to 3.2% greater, and is that not the case? >> Yes. >> At the same time, the side effect profile is better. Fewer people get side effects from it. But the difference, what Eli Lilly says, what they focus on, what their marketing machine has succeeded with, is the way it can be taken. That is, you can take it at any time. I can understand, I have just been to New York, and there, there is one thing that is quite big, and that we are all looking at, it is convenience. Convenience. Americans love convenience, but at the same time, Helge, it is like this, you can change the way you take the product, but you cannot change the product's efficacy and side effects. >> Yes, but it is very, very funny, Per, that Novo Nordisk is being beaten up because their injections generally do not have such high weight loss percentages as Eli Lilly has. And there, one thing applies. >> Yes. Then they make a pill that has a higher weight loss percentage than Eli Lilly's. Then another thing applies. >> Yes. >> Then it weighs more that you can take this pill around the clock. And everyone who takes pills, that is, there are many who take their vitamin pills and everything else. What they do is first thing in the morning, then they just take it, and then they make coffee and set the table or whatever they do, and then half an hour has passed, and then >> and it is those 30 minutes with Novo Nordisk, where you have to take it on an empty stomach. >> Yes. Oh my God. >> And I can promise you, if you take Eli Lilly, that nausea and vomiting, it occurs at the beginning when you start with the product. So titration is very important, so that you gradually increase the milligrams of Eli Lilly, so it suddenly doesn't become very convenient. What, how convenient is it that you just take it in the morning, and then you have lunch, and then you can't eat anything for lunch because you will vomit. Excuse me, but that is what it is about. So, yes, I I I can't understand it at all, and we have talked about it a lot, that sales argument that Eli Lilly has, it is like they are grabbing onto what they can use. That is what one does. One finds out, if you have a Nike shoe, well, there is gel in the heel. There is gel in Asics shoes, right? That is how these competitors are, you have to find something to compete on. If you cannot compete on weight loss, then Lilly, they are beating the drum, or Lilly, for this. I have seen analysts stand up publicly and on the BBC and all sorts of other places and say, yes, Lilly will get an advantage over Novo Nordisk because their pill can be taken around the clock. Well, I can't grasp it. >> We just have to say that here and now, well, Lilly has the upper hand, and it may also be that some of the research results for the next generations of weight loss pills, they have that. But to call it an Eli Lilly victory on this weight loss pill based on efficacy, side effect profile, and the way the pill is taken, I would also say, excuse my expression, that would be like biting off more than you can chew. We will follow this up closely in the coming episodes of the investment podcast with Hansen and Larsen. In next week's episode, 318. Perhaps we will warm up for the Danish financial statements. I think so. >> Yes, we are certainly close. Thank you for continuing to follow along.