Last week, the FTSE 100 group came to market with a US$3.5bn placing – the largest so far this year by a British company.
Around US$1.4bn of that will be used to fund a cancer collaboration with Japanese group Daiichi Sankyo.
The rest will be used for “general corporate purposes”, including restructuring debt, which UBS reckons is a sign that Astra is struggling to convert its top-line momentum into cash flow.
“The equity raise (US$3.5bn) that went with the license deal is also aimed at refinancing near term debt, a reflection of ongoing limited cash generation in the near term and a sign of slow margin recovery,” read a note to clients.
“We estimate free cash flow of >US$8bn is required by '23 to support a current EV of US$119bn (on a sector yield), a number we can't see AZN delivering.
“We downgrade to ‘sell’ (from ‘neutral’) [and] our price target falls to 5,400p from 5,900p after scrubbing the model/CF and updating for the deal.”
Investors can’t bet on cancer success
The analysts add that Astra is trading on a forward enterprise value/ EBITDA multiple of 18x, compared to the sector average of around 10x.
“At the current valuation, the market assigns perpetuity-like positioning to the key oncology franchises, despite oncology being fast-moving and highly competitive.”
Astra shares fell 1.1% to 6,101p in mid-morning trade on Tuesday.