Galderma: L’Oreal Doubling Down, Risk–Reward Looks Skewed To The Downside (OTCMKTS:GALDY)

Core Insights - L'Oréal S.A. is increasing its stake in Galderma Group AG from 10% to 20% [1] Valuation Methods - Various methods exist for sell-side analysts to determine a company's fair value, including DCF, multiples approach, and reverse valuation [1] - The DCF method requires precise assumptions and can introduce biases, while the multiples approach relies on the assumption that peer companies are fairly priced [1] - Reverse valuation starts from the market price and discount rate to uncover the free cash flow assumptions embedded in the price, providing a more straightforward assessment of market beliefs [1] Free Cash Flow Analysis - A Free Cash Flow to Equity (FCFE) model is utilized to assess what belongs to shareholders, calculated as Earnings + Amortization – CAPEX – average acquisition cost [1] - The analysis disregards working capital and debt changes, focusing on three key figures: earnings, amortization, and investments [1] Forecasting Methodology - The H-model is applied for forecasts, featuring a 10-year two-stage growth fade with terminal growth aligned to the risk-free rate, represented by the 10-year government bond yield [1] - All cash flows are discounted using the cost of equity, calculated as RFR × beta + 5% ERP, resulting in a clear valuation of the business [1]