HSBC initiates coverage of European pharmaceuticals Astra, GSK, Hikma and Shire

26th Jun 2015 07:51

HSBC initiated coverage of the European pharmaceuticals, saying the re-rating over the last few years looks set to continue.Although some pharma companies, such as AstraZeneca, still face generic pressure for drugs that contribute significantly to their top and bottom lines, the majority are largely through the patent cliff period that the industry suffered over 2010-2014, it said.It added that cash generation remains high and many companies are net cash positive or close to net cash positive. Dividends are well supported and growing, while research and development pipelines are commercially attractive, said HSBC.In terms of UK stocks, it initiated GlaxoSmithKline at 'buy' with a 1,700p price target, and AstraZeneca and Hikma Pharmaceuticals at 'hold' with 4,640p and 1,936p price targets, respectively. It also started Shire Pharmaceuticals at 'reduce' with a 4,734p price target.Where GSK is concerned, it said it does not believe that the group's worst case scenario on Advair will be realised. "As such, the outlook for revenue and earnings per share growth is markedly better than consensus currently estimates," said HSBC.The bank said AstraZeneca is fairly valued, even if the research and development pipeline delivers. "The shares are at a slight discount to the sector and this is the case for other valuation metrics as well. However, with future growth highly dependent on the prospects for the R&D pipeline, arguably a discount is warranted until some of those risks are mitigated."On Hikma, it said that although profit and growth has been stellar since the 2005 IPO, 2015 guidance disappointed and a pause for breath in revenue and earnings growth in 2015 is reasonable.HSBC's 'reduce' rating on Shire Pharmaceuticals is predicated on the risks to the probability of its Dry Eye Disease drug lifitegrast. The potential non-approval in the US is a downside risk for the shares in the near term, said the bank.