Broker snap: Astra's a top pick in pharma sector, says UBS

6th Aug 2012 11:17

UBS has reviewed its coverage for the European pharmaceuticals sector, highlighting that, for that the first time in five to seven years, the 'generics cliff' is coming out of forecasts.Following second-quarter results from pharma majors which provide visibility on full US generics, UBS has reiterated its view of a sector re-rating on emergence from the generics cliff in 2013, with 5-6% of sales growth likely in 2014-15."With the sector de-levering from binary investment cases and levering to sustainable growth, we see more room for upside," the broker said. Its European strategists are 'overweight' in the pharma sectorUBS highlights AstraZeneca and Novartis as its top picks for performance into 2013.Large-cap pharma companies have gone from 30% sustainable businesses (such as vaccines and consumer health) in 2005 to 50% today and this should exceed 60% by 2016."Because of this shift, no new generics cliff is coming. With this dynamic and the removal of focused risks (eg major patent challenges), we believe in the logic of pricing terminal growth, suggesting vast upside based on discounted cash-flow (DCF) valuation."As part of its review, the broker has made the following changes to UK-listed pharma peers:AstraZeneca: UBS lifts target price from 3,500p to 3,600p, 'buy' rating unchanged.GlaxoSmithKline: UBS cuts target price from 1,650p to 1,625p, 'buy' rating unchanged. BC