Broker tips: Hikma Pharmaceuticals, Imperial Brands, Pearson
Barclays upgraded Hikma Pharmaceuticals to 'overweight' and increased its price target on the company's shares after a US court ruled in favour of the generic drugmaker's treatment for heart conditions.
On Thursday the US court of appeals for the federal circuit upheld a district court ruling against Amarin's objections to Hikman's generic version of its Vascepa drug. The court ruled Hikma's version did not infringe any of Amarin's six main patents for the fish-oil based treatment.
Barclays analysts said they had been wary about reacting to Hikma's "impressive" first-half results because of uncertainty over the court case and the Federal Drugs Administration's view of Hikma's generic version of Advair.
Barclays said the ruling gave it a high degree of confidence and allowed it to add Vascapa to its model earlier than expected. The bank upgraded its rating on Hikma shares from 'equal weight' and increased its price target to £28 from £23.50.
"We expect this product to be significantly accretive to both 2020 and 2021 and see the potential for the product to have a longer tail given the relatively few number of gx [generic] filers," Barclays analysts said.
JPMorgan Cazenove upgraded its rating on shares of Imperial Brands on Friday to ‘overweight’ from ‘neutral’, as it said the current valuation is pricing in severe downside risks, leaving the risk/reward tilted strongly to the upside following the dividend cut in May.
"Supported by its robust free cash flow…we see IMB’s circa 50% payout ratio as sustainable with a further £1bn+ per annum available for cash returns or M&A from FY23e in our base case," said JPM.
The bank also said that with IMB’s valuation discounting its "listless direction", the arrival of new external chief executive Stefan Bomhard provides free optionality should he show competency and his new perspective can begin to rebuild investor confidence.
JPM cut its price target on Imperial Brands to 1,650.0p from 1,700.0p.
Analysts at Berenberg raised their target price on media firm Pearson from 400.0p to 450.0p on Friday, but stated the group's incoming chief executive, Andy Bird, faced "material challenges".
In Berenberg's view, Pearson was too geared to students aged 4-18 in mature markets and with a declining birth rate, it stated that demographic did "not offer growth" and also pointed to stiff competition in the market already as putting pressure on profits.
"We think there are more opportunities in lifelong learning, but Pearson's exposure to that segment is limited," said the analysts.
The German bank added that to fix the group's publishing unit, and reorientate towards growth opportunities, Pearson needed "an earnings reset", leading it to also reiterate its 'sell' rating on the firm as short-term consensus earnings looked "too high".