JP Morgan drops target price on BTG after 'cautious' PneumRx outlook

The company's 2018 pre-close trading update was as expected, but the outfit's caution on its PneumRx product, which management warned would not live up to expectations, saw its shares register their biggest single-day decline in a decade.

JPM's analysts noted that while overall top-line performance was in line with guidance, BTG's update on PneumRx led to a £150m impairment on the asset, lowering expectations and leaving the group looking at "immaterial" sales for that product across the next two years.

Nonetheless, even assuming that PneumRx now had a negative net present value, that would only take down the investment bank's NPV by 5%.

Hence, they said, the prior day's share price reaction was dubbed "excessive" .

"We await FY18 results on May 15th to get a clearer view on BTG's longer-term growth outlook, but we do see current levels as more attractive from a valuation perspective, with PneumRx now de-risked," they added.

"We take our PneumRx sales down to low-single-digit for the next two years, with sales remaining only mid-single-digit longer term. After also lowering PneumRx OpEx, PneumRx no longer makes a positive contribution to our NPV," James Gordon and his team at JPM noted on Friday morning.

JPM also said that BTG's lower group tax rate as a result of Donald Trump's recent amendments to the US tax code, down from 25.5% to 21% for its current trading year, was likely to be "largely offset" by marking-to-market on FX due to the strength of sterling against the US dollar.

"Overall, our EmV-derived PT is lowered by 9%, from 750p to 680p. Our NPV is lowered from 745p to 684p, which we round to 680p as the basis for our PT. Our Revenues forecasts are cut by 6-15% for 2019-22, c.5pp of which is FX, the remainder coming from lower PneumRx forecasts and slightly slower forecasts for Roxwood and Varithena, partly offset by higher Zytiga royalties near term," the analysts concluded.

JPM reiterated its 'neutral' rating on BTG.