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AstraZeneca - buy or sell? We ask five experts
on Jun 02, 2014 at 12:25
After AstraZeneca rejected Pfizer improved bid, we ask five wealth managers whether the UK drugs giant is a decent investment opportunity.
The bid battle at AstraZeneca has dominated the headlines and become a major political issue
Last week US drugs giant Pfizer said it was withdrawing its £55 a share bid, worth £69 billion, after Astra rejected its latest offer.
'Following the AstraZeneca board's rejection of the proposal, Pfizer announces that it does not intend to make an offer,' the firm said in a statement.
The news will delight the likes of Neil Woodford, who believes Astra is worth considerably more. However, BlackRock and Schroders expressed disappointment at the lack of engagement from Astra.
We speak to five wealth managers to assess what they make of the saga.
Andrew Morgan, portfolio manager, Walker Cambria, Swansea
‘While Pfizer’s bid would have put AstraZeneca on an enticing forward PE of around 22x, we think the company has done the right thing in turning it down. Leaving aside political concerns surrounding the company’s importance to the British economy, we believe an independent AstraZeneca will deliver better returns for its shareholders in the long term.
‘In the past, AstraZeneca has been viewed as losing its way – possibly fairly. Yet under CEO Pascal Soriot the company has been making major progress in refocusing on its key strengths – scrapping share buybacks, cutting costs, targeting key markets and rebuilding its pipeline.
‘Yet there is no escaping the fact that, for investors, the turnaround in AstraZeneca’s pipeline is a waiting game, during which time earnings and sales are set to fall. While we think rejecting the bid gives AstraZeneca the possibility of long-term success as a standalone company, a significant amount of the success from the current pipeline is already priced in.’
Peter Lowman, CIO, Investment Quorum, London
‘Clearly, the recent Pfizer bid for AstraZeneca has seen some of its largest shareholders become fairly vocal on the transaction and subsequent pressure on the AstraZeneca board.
‘Indeed, the British drugs giant has thwarted the American companies final bid of £55per share which all but guarantees its independence. Many differing comments have come out of the numerous leading investment institutions, particularly the larger shareholders. Undeniably, some believe that the AstraZeneca board acted too hastily rejecting the bids, and that the government were too out spoken on the question of restructuring and possible job losses.
‘Whilst the shares yield 4.5% and are on a P/E of just under 17x, much in line with the pharma sector, it begs the question can the shares go any lower? Certainly, however, it must be said that the apparent comments from the companies advisers, Morgan Stanley, Goldman Sachs, and boutique firm Robey Warshaw that Astra might be willing to consider a bid, on or above, £58.85 per share is intriguing.’
Charlotte Watson, chief investment officer, Attivo Cheltenham
‘We remain holders of AstraZeneca following the firm’s rejection of the Pfizer bid, as we still see great value for shareholders in the longer term. The company is in a very different position compared to two years ago when Pascal Soriot took the helm and it now has the strength to assert its independence. The research pipeline has been significantly increased which is key to any pharmaceutical company, bringing it back into line with its European competitors. AstraZeneca aims to launch 10 new medicines by 2020. Revenues will decrease in the short term due to the patent protection expiry in both Nexium and Crestor but we feel this is already priced in. The firm has aggressive targets in terms of increasing revenues, expecting by 2017 to be back at last year’s figure with then further increases year on year.
‘The Pfizer deal was on the table mainly due to tax reasons and therefore would perhaps not have been the best partner for AstraZeneca. The US firm was trying to avoid a multimillion dollar tax bill and going forward the ability to gain from UKs corporate tax rate of 20% rather than the 40% in the United States.’
Stephen Walker, head of equities research and market strategy, Ashcourt Rowan, London
‘We recommended the sale of AstraZeneca a little over a year ago and recent events surrounding the potential acquisition by Pfizer do nothing to persuade us the decision was wrong. Our logic for exiting was based around the fairly well understood story of a heavily compromised core business and an unwillingness to attach significant optimism to a relatively early stage drug pipeline; the sharp divergence of views on the stock is largely a function of expectations for that pipeline. Analyst price targets prior to the Pfizer approach ranged from £27 up to £46, an unusually large range for such a major company.’
Ed Fetherston-Dilke, investment manager, Arbuthnot Latham, London
‘Following AstraZeneca’s blunt rejection of Pfizer’s fourth offer, valuing it at £55 per share, or £69 billion, shareholders understandably sold down positions as chances of a deal diminished. Despite falling 12% on the news, the shares have performed well in 2014 and are still up 17.5% in the year to 19 May compared to a FTSE 100 return of 1% over the same period. With Pfizer now prohibited from making further overtures as part of UK takeover legislation, and at nearly 17x next year’s earnings we believe the shares are overvalued compared to industry peers. ‘