Broker snap: Panmure still convinced of Astra's appeal

28th Oct 2010 12:14

The market had expected the third quarter would be a tough one for AstraZeneca and so it proved.Company revenues declined by 3.7% from a year earlier to $7,898m, but topped market expectations of $7,830, though they failed to meet Panmure Gordon's expectations of $7,961m.Core earnings per share (EPS) fell 10% to $1.50, a shade below consensus of $1.52, and, again, below Panmure Gordon's expectations; the broker had pencilled in $1.62, but it does not seem too fussed by the company's miss, noting that "clean" core EPS, which strips out asset write-downs, was $1.56.The broker thinks gross margin will be seen as the biggest concern, as it fell by 3.9 percentage points from a year earlier to 80.7%. "The base was boosted by some 180bp [1.8 percentage points] due to the release of a provision so we are not unduly concerned by the dynamic of this quarter's gross margin," said Panmure analyst Tom Kemp. Looking across the product range, sales of Crestor ($1,374m vs Panmure's projection of $1,450m) and Symbicort ($640m vs $670m) fell below the broker's expectations, but Nexium ($1,242m vs $1,240m) and Seroquel ($1,303m vs $1,285m) came out ahead.The big miss was on Arimidex, where sales of $284m fell well below Panmure Gordon's forecast of $370m, as generic alternatives to the drug bit into sales in the US more than the broker had expected.Nomura Securities, by contrast, went too far the other way, predicting Arimidex sales of $266m, versus the market consensus of $284m.Panmure Gordon remains a "conviction buyer" of Astra, which trades on an undemanding multiple of 9.1 times projected 2011 earnings per share. "We note that although consensus has moved the way we had expected it to since the company provided long-term guidance in January 2010, consensus forecasts for 2014 in particular remain persistently below our forecasts and we can expect as much as 17-20% upgrades to consensus in the next few months. We expect the company to continue to 'beat' on earnings and quite possibly also increase the scope of its long-term guidance as early as January 2011 if the pipeline continues to crystallise further," the broker said.Panmure Gordon has a target price of 3600p for Astra.