Liberum initiates Shire at 'buy' despite Baxalta

It said the performance of the shares since August last year suggests investors are clearly worried Baxalta is not the right deal, with concerns focused on haemophilia and tax.

Shire is down 29% since the first deal announcement.

“We've done detailed work on Baxalta and conclude that, although we don't like the deal, even with our base case estimates accounting aggressively for the risks, Shire is still cheap,” the brokerage said, noting that downside risks are already fully priced and not relevant for another couple of years.

Liberum assumes a 75% hit to inhibitor sales, a 12% hit to haemophilia, an associated margin hit and below-consensus standalone Shire earnings.

Nevertheless, it stills gets to 9% compound annual growth rate core earnings per share growth to 2021, versus 8% for EU large cap peers.

Liberum reckons Shire should trade broadly in line with peers at 14.1x 2017 earnings, getting to a 4,700p price target even on its bearish, below-consensus numbers.

“With the current valuation supported on discounted cash flow, we think this is a classic value play with significant asymmetric upside risk,” Liberum said.

At 0950 BST, Shire shares were down 0.3% to 4,040p.