Shire's haemophilia unit 'is sustainable', but Societe Generale trims target price

Analysts at Societe Generale took a look at biotech company Shire on Wednesday, both execution and communication need to improve for investors to ignore the "thousand cuts" and focus on the payday ahead as it cut its target price by 500p.

Societe Generale cut Shire's twelve months target price to 7,500p from 8,000p, saying that rising confidence in the sustainability of its haemophilia and HAE franchises, an exit from its cash generative neuroscience unit or surprise upsides from its Xildra product would help restore faith in the firm.

The analysts reiterated their 'buy' rating on Shire.

SocGen claimed Shire was poorly valued on consensus estimates due to concerns that its haemophilia and HAE franchises were not sustainable, leaving the firm unable to service its debts without its ADHD products, but its analysts didn't see eye-to-eye with the consensus.

"We strongly disagree," said analysts, with its target price still averaging price multiples for forecast earnings from 2018to 2020 of £64 and a discounted cash flow basis of £86, but they trimmed the target price to reflect estimate changes.

"Applying the 20x P/E Sanofi paid for Bioverativ would value Shire’s haemophilia business at £20/share. We continue to value ADHD at £10/share.

"Subtracting this £30 from the current share price implies that the remaining franchises (which account for nearly 50% of group EPS and are all durable, in our view) trade on a low-single-digit 2018e P/E – hardly rational," the report read.

As of 1640 GMT, shares had picked up 1.80% to 3,109.00p.