Exane upgrades Shire on Baxalta deal

Exane BNP Paribas upgraded Shire to ‘outperform’ from ‘neutral’ and reiterated its 5,700p price target following the company’s agreed merger with Baxalta.

It said whether you like the deal or not, the Shire-Baxalta valuation is compelling and it’s time to buy the shares.

“Whilst Baxalta may not have been Shire’s best M&A option in our view, it is nonetheless a value-enhancing deal.”

Exane said that although the merger with Baxalta does not materially boost Shire’s growth profile in the mid-term, it will provide the longevity of growth and cash flow support that Shire needs as it moves towards patent expiries for drugs Vyvanse (2023), Firazyr (2019/20) and Lialda (2019).

Assuming Shire can extract $550m of cost and $300m of sales synergies from the combined entity, Exane reckons there could be 6% earnings per share accretion and projected returns ahead of cost of capital by 2019.

Although this is not stellar, it’s certainly not disastrous, the bank said.

Exane added that the pro forma valuation is compelling, noting that on 2017 price-to-earnings, the combined group trades at a 30% discount to the large pharma peer group.