Shire's valuation is irrational, SocGen analysts say

Shire's valuation makes no sense and investors should buy shares in the UK pharmaceuticals company, according to analysts at Societe Generale.

Shire's shares have fallen by more than 10% in 2018. The SocGen analysts said the decline was "irrational" despite an unhelpful delay to the conclusion of a review of Shire's ADHD business to the second half of 2018.

The analysts said Shire "is an outlier on consensus estimates" because of concerns its haemophilia and severe facial swelling businesses are not sustainable and that the company cannot service its debts without its ADHD division.

"We strongly disagree," the analysts, led by Justin Smith, said in a note to investors. They urged clients to emulate Berkshire Hathaway's Charlie Munger "by trying to be consistently not stupid instead of trying to be very intelligent".

Market values suggest Shire's haemophilia business is worth £20 a share and the ADHD division is worth £10 a share. That leaves the rest of Shire's businesses trading at a price to equity ratio of three times and "this is simply unjustifiable", the analysts said.

The analysts reiterated their 'buy' recommendation and target price of £8. Shire shares rose 1% to £3.47.