The Swiss bank has had a ‘sell’ rating since the Anglo-Swedish pharmaceuticals group’s equity issue last year that was partly to finance its dividend.
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AZ’s poor cash conversion and ambitious profit margin aspirations were the reasons behind the negative stance, the UBS analysts said.
“The market shrugged off both for most of this year as the burden of proof is still on the company regarding cash conversion/deleveraging.”
But given the 12% share price slide over the past two weeks amid the 70% success of its COVID vaccine, the UBS spreadsheet-jockeys upgraded their rating to ‘neutral’ with the share price target nudged up to 7,500p from 7,300p due to currency swings.
UBS estimates 15% compound annual growth rate of adjusted earnings per share between 2020 and 2025 and following the slide the stock is on a “palatable” 13% premium to the sector by the 2024 financial year, with a free cash flow yield that is “in the right ball-park now”.
Next year has “a number of catalysts in store” for the FTSE 100 drugmaker that will make it a “noisy year…but it won’t be plain sailing”.
Among the 2021 events, there should be updates from the Imfinzi and Imfinzi+tremelimumab oncology trials (known as PACIFIC-2, HIMALAYA, KESTREL and POSEIDON), but the general analyst consensus is that there’s not much more upside for the shares on this news, although additional Lynparza read-outs (OlympiA and PROpel) “will be interesting”, while the most important is expected to be breast cancer product Enhertu in the DESTINY-Breast03 trial which “could keep long-term double digit billion sales aspirations alive”.
There is “potential downside risk” from the head to head ELEVATE-RR trial for Calquence and, outside oncology, Farxiga, for adults with type-2 diabetes or with a type of heart failure, “has a shot at broadening its position” in a tough setting in the DELIVER trial.
The company is anticipated to have further portfolio moves up its sleeve.
“The pipeline isn’t free but there will be a lot to discuss.”