Sunday share tips: Shield Therapeutics, M&G
In her ‘Inside the City’ column for the Sunday Times, Sabah Meddings wrote that investors in the City had “all but written off” Shield Therapeutics a year and a half ago, after its treatment for iron-deficient patients had apparently failed a pivotal trial, and so was met with a thumbs-down from the US Food and Drug Administration.
At the time, Shield’s shares crashed 69% and the company was left floundering, with chief executive Carl Sterritt saying that “everyone is scratching their heads”, as the company had been sure that the drug - ‘Ferracru’ - would pass with flying colours.
Further analysis showed that the drug had in fact worked, and in the end the AIM-traded firm got the approval it needed in Ferracru to access a potential billion-dollar market.
As a result, its shares have rocketed in recent times, and Meddings noted that someone who put £1 into Shield a year ago would now be sitting on £500, as shares closed at 181.6p on Friday, valuing the company at £212.8m.
She said the market for a drug that had the potential to treat iron deficiency was massive, with analysts looking at possible sales of more than £300m per year, based on a market size of six million adults with iron deficiency anaemia caused by inflammatory bowel disease and chronic kidney disease.
Another 28 million patients suffered from iron deficiency as a result of other health problems, which meant the market could be significantly higher, as patients and medical practitioners looked to solve a problem that causes fatigue, headaches and shortness of breath.
Meddings said that in minor cases of iron deficiency, relatively cheap pills can be used as a treatment, although they often cause side effects including gut issues.
More complex cases needed intravenous treatment in hospital, which carried the risk of anaphylactic shock.
Ferracru has reportedly shown fewer side effects than the existing treatments in trials, and the salt formulation was believed to be as effective as an intravenous drip, meaning patients could potentially avoid long stays as inpatients.
The company has also inked a deal with Dutch pharmaceutical firm Norgine to sell the products in the UK and Germany, seeing sales rise 428% to £2.6m in the first half of this year.
It also has enough cash to see it through to the third quarter of 2020, with the firm eyeing up a number of attractive deals, including one in the US that could bring in more than $50m upfront and $100m in milestone payments.
Meddings said the company’s early issues, which saw its shares plunge to just 15.75p, forced a strategic reset at the firm, which saw it aim for licensing deals rather than doing all of the selling itself.
It also remained loss-making, like many in the biotechnology space, hemorrhaging £2m in the first part of this year, although analysts were pencilling in positive figures for 2021.
“FinnCap, its joint broker, has put a 350p target on the stock, while Peel Hunt, its nominated adviser and joint broker, is predicting a more modest 200p,” Meddings wrote.
Over in the Sunday Telegraph, ‘Questor’ was focussing on asset manager M&G, which was demerged from Prudential last month and was now looking to revive itself from a period of net outflows.
Questor noted that, now that the split was complete, markets were becoming keen to the company’s “defensive qualities” in its £341bn of funds under management, especially given the particularly uncertain political outlook in the United Kingdom.
It also suggested the fact that it was led by Hill Samuel veteran John Foley, who was Prudential’s UK and Europe chief, was a particularly redeeming quality.
The strength of its strategy was evident, given analysts at Deutsche Bank reckon that in the event of a 25% fall in stock markets, M&G’s capital generation would only suffer an 8% hit.
They also wrote that 90% of the company’s dividend was covered for the next three years by some solid sources of income - the with-profits book, and annuities, which total £131bn of ‘heritage money’.
While Questor recommended the pre-demerger stock in April, it noted on Sunday that very little of the “hoped-for hidden value” had been uncovered thus far, although it believed that would be an easier ask now that the two sides have gone their separate ways.
It also suggested that the “Prudential versus M&G” headline choice between growth and income was more nuanced than it looked, given the Pru’s Asian franchise appeared to be the star of the show, selling life insurance to the region’s growing middle classes.
M&G, meanwhile, could “paint itself as the domestic operation at the back of the budget queue when there were more exotic markets to conquer”, Questor quipped, adding that now that it has been handed its freedom, it management remained “sketchy” on an asset management investment programme.
The asset management arm had suffered £4.6bn of net outflows in the first half of the year, which was offset by market appreciation, although the column suggested operating profit should be able to bounce back from the 12% slide to £239m it reported in June.
Retail margins were another space to keep an eye on, given the Woodford scandal had done the sector no PR favours, leading to a “relentless” reallocation of funds to passive trackers.
But M&G’s performance remained “solid”, with investors enticed by its appeal to institutional investors - a source from which positive flows had been continuing for the last six years.
The with-profits investments were another plus, with the ‘PruFund’ platform an appealing one for savers approaching retirement, with the £13bn inherited estate set to “act as a buffer against investment returns” - although shareholders could be waiting for their 10% slice, given the returns are only released as policyholders transfer out.
Analysts at Shore Capital have pencilled in £400m of annual shareholder transfers for the second half of the decade, adding that PruFund could bring in £10bn of new business a year - well ahead of the £8.5bn it reported last year.
M&G was also keen to expand internationally, with its products currently being sold in 28 countries.
“All eyes are on the target for cumulative total capital generation of £2.2bn by the end of 2022, which will feed the chunky dividend: the shares yield 8%,” Questor said.
“There could be more upside as UK life expectancy forecasts are reined in.”
It noted that trading on seven times next year’s forecast earnings, M&G looked “a better bet” than its old rival Aviva.
“Call it an insurance policy against whatever could go wrong on the campaign trail,” Questor concluded, giving the shares a “buy”.