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Shire climbs on prospects for Baxalta merger

Discussion in 'Market News' started by Lily, Jun 1, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Analysts positive about deal which is due to complete by end of week

    On a downbeat day, shares in Shire are bucking the trend.

    The pharmaceutical group’s shares have climbed 105p or 2.4% to £43.65 after a positive note from Credit Suisse, which repeated its outperform rating and £50 price target. Last week investors in US group Baxalta approved a £22bn takeover from Shire, with the deal now expected to complete by Friday. The bank’s analysts said:

    We publish our updated Shire Baxalta model ahead of the expected deal closing on June 3. We see 5% earnings per share accretion over our stand-alone Shire numbers by 2020. This assumes $500m of operational cost savings, $400m of incremental sales (adding $170m of operating earnings) and a combined group tax rate of 16.5% by 2020...

    Shire Baxalta combination offers best in class earnings per share growth at an attractive valuation: Shire is well placed to use the ex-US infrastructure from Baxalta to accelerate the commercialisation of the group’s rare disease drugs and is broadening the portfolio away from ADHD. Baxalta adds a number of new areas with attractive growth and high barriers to entry.

    We believe investor focus on the threats to Baxalta’s haemophilia franchise mean that the transformational nature of the acquisition has been largely ignored. While we are cognisant of risks on the horizon from potentially paradigm-changing therapies, we believe worst-case investor fears over threats to this franchise are misplaced. Importantly, we see upside to the shares even in bear cases where Baxalta’s franchise sees considerable declines.

    With our base case forecasts suggesting Shire can deliver a 2016-20 earnings per share compound annual growth rate of more than15% in return for just 13 times 2017 estimated PE, we reinstate our rating at buy.

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