Broker tips: IAG, Shire, Indivior

IAG's strong performance in the first quarter eased concerns over its revenue outlook, Credit Suisse analysts said in a note. They left their price target unchanged at 721p and increased their estimate for IAG's annual pre-tax earnings before interest by 1% to €3.27bn – 5% higher than consensus.

IAG has added revenue from transatlantic flights despite increased competition from budget carrier Norwegian and IAG's UK-US market share increasing. IAG has made two offers to buy Norwegian.

The group's airlines' revenues were linked more closely to fuel prices than capacity growth this decade, the analysts said. “This inspires confidence in summer revenues as fuel prices rise,” they added.

Strong summer trading would support confidence in IAG's free cash flow generation and its ability to distribute the cash, the analysts said.

IAG has not started its cash distribution plan for the year. It has €1.05bn to pay out through the dividend and buybacks "suggesting a sustainable 7% [dividend] yield" the analysts said.

Analysts saw the positives as Shire agreed to be taken over by Takeda Pharmaceutical, as the Japanese company's statement "alleviated some concerns" about the deal.

The acquisition, expected to close in the first half of 2019, has been approved by both boards and will be subject to votes of Shire and Takeda shareholders and EU, US, Chinese, Japanese and Brazilian regulatory bodies.

As a result of the combination, Takeda said it expects to generate annual pre-tax cost synergies of $1.4bn by the end of the third fiscal year, noting that the acquisition of Shire would be "significantly accretive" to earnings from the first full fiscal year following completion.

"We believe today's release did alleviate some of the concerns surrounding the transaction, most notably Takeda's reassurance that it could de-lever to under 2.0x before asset sales and/or equity rounds," RBC Capital Markets said.

Takeda management highlighted that its dividend would remain intact, which may have been a concern for some investors, RBC felt, but analysts anticipated the deal spread will to remain wider than normal given the complexity of the transaction requiring approval in various geographies, the ability to realize synergies, especially research and development and the deal's long-dated closing date.

Encouraged by Indivior's update on the launch of its Sublocade monthly opioid addiction treatment, Jefferies showed its confidence in the drug maker with an improved target price and a reiterated 'buy' rating.

While reported sales were down 8.4% across the US in the first quarter, Jefferies analysts noted that a one-off de-stocking effect was responsible for around 3-4% of the weakness, leading them to forecast a slight increase to net price erosion from less favourable payer mix.

The analysts expect sales of Sublocade, a once-monthly injectable buprenorphine formulation for the treatment of 'moderate-to-severe' opioid addiction, to be minimal in the first half of the year, however, the firm indicated that its initial launch had been encouraging, with positive feedback from both patients and doctors.

"Demand appears to be strong, such that the company's go-to-market Insupport hub has experienced some logistical challenges given the volume of patients, but we expect increased investment and resources here should rectify those at this early stage," the Tuesday report from Jefferies read. "We are encouraged by the initial launch and maintain our bullish stance."

"Despite a recent strong share price move, we continue to believe the market is overly discounting Sublocade and there is still compelling upside to the current share price, in our view."

Jefferies upped Indivior's price target to 630p, from 610p, and reiterated its 'buy' stance on the stock.