Broker tips: Hikma Pharmaceuticals, AJ Bell
JP Morgan has upped its rating on Hikma Pharmaceuticals after the generics specialist won a key patent challenge.
On Tuesday, the US District Court for the District of Nevada ruled that Hikma’s generic version of rival Amarin’s drug Vascepa did not infringe six patents, as Amarin had claimed, and JP Morgan argued that the ruling offered “significant upside”.
It has upped its rating to ‘overweight’ from ‘underweight’, and raised its price target around 20% to £24.
The bank argued: “We now see a potential Hikma generic Vascepa approval in the second half of 2020, which could position the company as one of a handful of players targeting a $2.5bn+ peak sales opportunity.
“We believe this significant optionality is yet to reflected in Hikma’s shares, with less than $0.3bn of market cap gained since the update versus the around $3.4bn hit to Amarin’s market cap.”
JP Morgan said it believed the significance of the patent win had been overlooked by the market, in part because of Covid-19 but also because some investors did not believe Hikma would receive approval from US Food and Drug Administration “any time soon”.
In addition, JPM Morgan noted: “Hikma also offers a robust base business and a clean balance sheet, positive attributes in the current environment. We see little Covid-19 impact, with potential for some increase US general utilisation during the epidemic.
“Though deal making may be on hold, with a clean balance sheet we believe Hikma is well position for future M&A.”
Analysts at Berenberg lowered their price target on online stockbroker AJ Bell from 280.0p to 230.0p on Thursday, stating the group faced more acute revenue pressure in the current environment than its UK small-to-mid cap platform peers.
Berenberg said that in addition to headwinds from market weakness in assets under management-related fees, AJ Bell was "uniquely exposed" to falling interest rates and stated that consensus downgrades thus far had "failed to recognise this pressure".
"AJ Bell's own guidance on market and interest rate sensitivity implies a revenue headwind in the region of c£12m 2020E, rising to c£25m in 2021E and c£30m in 2022E," said Berenberg.
"Since the end of January, consensus downgrades of £5m-13m fall short on average of guidance for the market impact alone, implying downgrades have yet to reflect falling interest income at all. We expect further downgrades as consensus adjusts to the current environment."
While the German bank acknowledged that first-quarter platform flows looked like they had been "strong", its analysts noted that AJ Bell's flows were likely to rebase lower as time moved on given that even if customer behaviour is unchanged, flows would still be impacted as the value of portfolios being transferred falls with the market.
Berenberg, which also cut its earnings per share estimates for AJ Bell by roughly 20%, now expects AJ Bell to underperform as analysts' estimates fail to reflect current conditions.