Shire’s (SHP) investors still seem to be having a hard time deciding whether the group’s $32bn (£24bn) debt-funded acquisition of rare disease specialist Baxalta was truly transformative or simply too risky. The share price has slipped downwards since the takeover was completed a year ago, leaving chief executive Flemming Ornskov frustrated that the group’s impressive pipeline of new drugs is being overlooked. “It’s not a theoretical valuation gap, it’s a real gap,” he told the Financial Times last month.
But these half-year results may have gone some way to ease investor nerves. To date, $400m of integration cost synergies have been recognised, $100m ahead of management’s previous first-year target. Meanwhile, net debt has dropped by $1.1bn and now stands at roughly 3.5 times adjusted cash profit. Management has committed to reducing this to below three times by the year-end. Interest costs have also come down by a fifth from the second half of 2016, after the group refinanced its debt last September.
Dr Ornskov’s frustration that the pipeline is being overlooked may not be misplaced. In the last six months the group received approval in Europe for two rare disease medicines, in the US for hyperactivity drug Mydayis, and applied for authorisation for a new gene therapy to treat haemophilia. There were also positive results from a pivotal clinical trial for angioedema treatment, Lanadelumab, which brokers think could reach $2bn of peak sales by 2022.
Sales momentum is also encouraging. Excluding the addition of the plethora of new products from Baxalta, revenue rose 7 per cent, while legacy Baxalta products reported an 8 per cent year-on-year increase. Concerns about a new unbranded competitor to Lialda – which generated $208m of revenue in the first half – have forced management to trim its top-line guidance by 1 per cent to between $14.3bn and $14.6bn. But the faster-than-expected cost synergies from Baxalta means earnings per American depository share are now expected to be 10ȼ higher at $15.
Broker Liberum has forecast adjusted EPS of 507ȼ in the year to December 2017, from 437ȼ last year.
| SHIRE (SHP) | ||||
| ORD PRICE: | 4,220p | MARKET VALUE: | £38.3bn | |
| TOUCH: | 4,093-4,400p | 12-MONTH HIGH: | 5,377p | LOW: 4,025p |
| DIVIDEND YIELD: | 0.6% | PE RATIO: | 84 | |
| NET ASSET VALUE: | 2443ȼ* | NET DEBT: | 68% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (ȼ) | Dividend per share (ȼ) |
| 2016 | 4.14 | 496 | 78 | 4.63 |
| 2017 | 7.32 | 596 | 66 | 5.09 |
| % change | +77 | +20 | -15 | +10 |
| Ex-div: | 07 Sep | |||
| Payment: | 20 Oct | |||
| *Includes intangible assets of $52.9bn, or 5,827ȼ a share £1=$1.31 | ||||
