Broker tips: Indivior, St James Place, Tate & Lyle

30th Jul 2015 18:34

(ShareCast News) - Shares in Indivior were given a downgraded 'neutral' rating from Citi after their strong performance in the year to date, while Deutsche Bank argued the company's drug pipeline was not fully reflected in valuation and upgraded to 'buy'.A day after the company's interim results, Citi raised its target price to 270p from 240p but said an 80% run in the stock since the beginning of 2015 had changed the balance of risk and reward.Read more: Indivior hikes guidance as it holds off generic attack in solid first halfThe bank mulled the potential loss of intellectual property on Indivior's heroin addiction treatment, Suboxone film, which is currently being contested by litigation lawyers."Our estimates and valuation framework is unchanged, but we believe the share price now reflects a significant delay to Suboxone film generics from the worst case scenario of February 2016."The litigation outcome is expected to have a significant impact, with the loss of IP on Suboxone film likely to lead to around 70p of downside to the current share price, whereas a settlement or delay to generics beyond 2019 would provide upside.News on the company's drug pipeline is expected to flow freely in the second half 2015, with Citi eyeing positive results for the monthly buprenorphine depot as key to Indivior's valuation, while an important PK study for a swallowable capsule also on track to begin soon and intranasal naloxone approval expected around the end of 2015.At current levels, the stock trades on 17 times 2016 earnings with an estimated 2016-2021 EPS growth of 11%, in line with the sector, which Citi said offered a balanced risk/reward payoff.However, Deutsche's upgrade was based on a discounted cash flow target price hiked hugely to 300p from 220p as analyst Sarah Potter takes over coverage."Our base case model now conservatively assumes a negative scenario of launch of generic Suboxone film from 2018. Despite this, our DCF valuation still offers 12% upside," she wrote.Potter also said she saw the potential for multiple pipeline catalysts through 2015, which offers a further 34p or 11% upside and "should increase investor confidence in Indivior's pipeline", plus the "high likelihood" that Indivior engages in M&A to diversify away from buprenorphine which should offer yet more upside.Deutsche took confidence from management's bullish results presentation and noted that business development is the next priority with a focus on addiction, central nervous system and addiction co-morbidities.Indivior also reiterated its prior comments that settlement remained an option with the Suboxone film ANDA filers given it would provide visibility on a significant overhang to both investors and ratings agencies. Berenberg downgraded St James's Place to 'hold' from 'buy' with an unchanged price target of 950p, saying that following a strong rally year-to-date the share price is now largely up with events."With the FTSE 100 and FTSE All Share struggling to stay in the green so far this year, the performance of St James's Place at +16% seems somewhat difficult to justify."Despite reporting a strong set of first-half results in terms of net flows and funds under management, the negative impact of the significant increase in the Financial Services Compensation Scheme levy has created a drag on earnings, the bank said."Furthermore, as management continues to look to invest (both organically and inorganically) to drive the next leg of growth, the short-term impact on costs looks set to prove more negative to earnings progression than we had previously forecast."Berenberg said that while it's well-positioned for longer-term growth, it sees better opportunities elsewhere at the present time.It said earnings and cash generation have been affected by regulator and investment spend, tempering its enthusiasm for the business model. Societe Generale upgraded Tate & Lyle to 'buy' from 'hold' and raised the price target to 620p from 600p.The bank said that with 2016 earnings per share estimates now half the level of where they stood only two years ago, we may be getting close to the end of the long-running earnings downgrade cycle."With a 5% prospective yield and some painful decisions to de-risk the business behind it, the outlook looks both reasonable and rebased to us."It said the company's first-quarter trading statement was "reassuringly dull" and the outlook was in line with expectations.SocGen said the dividend of 28p is clearly a share price support and gives a yield of around 5%.It said Tate's balance sheet is relatively strong and the company will receive £200m from the European bulk disposal so there is little funding risk, especially as the chief executive indicated that capex requirements should materially reduce in full-year 2017.Given better visibility on the Speciality Food Ingredients business, SocGen now values the stock on a 15% price-to-earnings discount to the European food ingredient peer group average. With a 5% prospective yield, this gives a total shareholder return of 19%.