Tuesday, 22 April 2014

AstraZeneca gets a Pfizer boost

I highlighted the potential value in AstraZeneca (AZN.L) back in December of last year (AstraZeneca: why it should defy the bears and perform in the long term) when it sat at just above £36, pointing to excessive bearishness on the part of professional analysts and investors, and the potential for a revaluation of its pipeline of new drugs under development.

It seems from the weekend press (The Sunday Times reported a mooted $101bn bid for AstraZeneca by Pfizer) that the US drug giant Pfizer would agree, as Pfizer is reported to have been recently in talks with AstraZeneca to merge their two companies.

Such a deal would bring Pfizer further drugs under development in the field of cancer treatments (oncology) that use the body’s own immune system to attack cancer.

This has taken AstraZeneca up this morning back above the £40 price mark, close to the highs around £41 hit back in late February of this year (Figure 1).

Source: Bigcharts.com

Not the only Pharma deal today

Note that merger & acquisition activity is firmly back on the stock market agenda today, with not only this Pfizer/AstraZeneca talk, but also a big deal taking place between the Swiss company Novartis and the UK’s GlaxoSmithKline, with Novartis buying Glaxo’s cancer business for as much as $16bn, with Glaxo buying Novartis’ vaccines business in return for just over $7bn.

So after a long period where there had been little such activity, it seems that M&A is back on the Healthcare sector’s menu.

Highlights the latent value in Astra

Just to remind you, AstraZeneca is still relatively good value, offering a dividend yield in excess of 4% at the current £40.49 share price. At a forecast 11x EV/EBITDA valuation ratio, Astra is no longer as cheap as it was back at the end of last year, but nevertheless could offer further upside should a deal with Pfizer finally materialise.

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