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Shire acquisition divides opinions

Published: 09:41 03 Nov 2015 GMT

Shire2_opt

Brokers appear to be in a parsimonious mood today, with bookie William Hill (LON:WMH) the only big hitter receiving an upgrade.

Barclays Capital has bumped up its price target from 385p to 415p, prompting a switch in the rating from 'equal weight' to 'overweight'.

Sector peer Paddy Power (LON:PWL) gets a pat on the back in passing from Barclays, which says its clients should be overweight in the Irish bookie's shares.

Liberum Capital has had a shufti at the house building sector, where it reckons margins are under pressure.

Its belief is that the valuations on the largest players in the sector are too optimistic, as house price inflation is likely to be kept in check by a more vigilant regulator and as build cost inflation returns.

Barratt Developments (LON:BDEV), Persimmon (LON:PSON) and Taylor Wimpey (LON:TW.) are all cut from 'hold' to 'sell' with Liberum suggesting there is better value to be held from builders who can grow profits by raising output.

Its top picks in the sector are Bellway (LON:BWY) and Gleeson (LON:GLE); the former has a price target of 2,906p – around £3 above the current level – and the latter a target price of 570p, versus the current share price of 492p.

Yesterday's announcement of the agreed takeover of skin swelling drug developer Dyax Corp by Shire has obviously got the thumbs-down from Kepler Cheuvreux, which has cut the target price to 5,900p from 6,000p, though it sticks with its 'buy' recommendation.

The broker reckons the Anglo-Irish firm overpaid, and having crunched the numbers it reckons the internal rate of return (IRR) is 6.4%, against a weighted average cost of capital (WACC) of 8.3%, so the deal actually destroys value

“Despite the announcement, Shire management made it clear that it is still keen on pursuing the Baxalta takeover, which thus may continue to weigh down the shares,” the broker added.

JPMorgan Cazenove, meanwhile, takes a different view and has reiterated its 'overweight' recommendation and price target of 6,600p on Shire.

“Overall, we see the Dyax transaction significantly expanding, defending and extending Shire’s HAE (Hereditary Angio Edema) franchise, and helping to diversify the company around the 2023 Vyvanse patent expiry, providing a long-duration asset with protection out to 2030,” Cazenove said.

“At the price paid ($5.9bn + $0.6bn CVR), assuming Phase III success in 2017 and timely approval for DX-2930 in 2018, we forecast 6% Core EPS accretion in 2019, rising to 8% in 2020, with accretion reaching the twenties by 2023. For 2016-20, the transaction could take our Core EPS CAGR from 11% to 14%,” the broker added.

US broker Jefferies has restated its 'under-perform' recommendation on emerging markets-focused bank Standard Chartered (LON:STAN) in the wake of this morning's blockbuster rights issue.

The bank announced a surprise plunge into the red, and said it was raising £3.3bn and shedding 15,000 jobs.

The new shares are being issued at 465p on the basis of 2 new shares for every 7 currently held.

At least no one could accuse Standard Chartered of asking its shareholders to finance their own dividend payments, as the divi has been binned as well.

Jefferies has a price target of 602p for Standard Chartered.

Lastly, Ryanair's (LON:RYA) interims, released yesterday, have made Nomura even more bullish on the stock.

It is predicting 3% earnings per share (EPS) growth in fiscal 2016 and 7% growth in EPS in fiscal 2017, on which basis it has pushed up its price target to €17 from €16, keeping its projected EPS and enterprise value/underlying earnings multiples unchanged.  

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