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Broker tips: Indivior, Rolls Royce, ABF

Wed, 8th Nov 2017 18:47

(ShareCast News) - Indivior is likely to gain approval from US regulators for its monthly treatment for opioid addiction, which should eventually lift company sales north of $1bn, said Citigroup on Wednesday as it upgraded the stock to 'buy' from 'neutral'.

Citi, which hiked its share price target to 490p from 280p, said the safety and compliance benefits of the RBP-600 monthly buprenorphine injection should support a peak market share estimate of 15%, with launch expected in February 2018 if it gains approval from the Food & Drug Administration by the end of this month.

Competition for RBP-600 is expected to come from a monthly depot from Camarus launched in a similar timeframe, but Citi believe Indivior's "strong track record of brand building and sales and marketing competence should prove to be a decisive factor".

Next year is an important one for the company, with generic rivals to its Suboxone film expected from April if not before, while a deadline for approval of Invidior's RBP-7000 monthly risperidone for treatment of schizophrenia to come in the third quarter.

Analysts at Barclays have hiked their target price for shares of Rolls Royce but take issue with the current 5% free cash flow yield the stock is trading on, telling clients the market is using a peak level to calculate the company's future cash flows as a reference.

In their opinion, management deserved credit for the cost savings they had achieved. They also believed the company's guidance for roughly 1bn of free cash flow around 2020 was "appropriate".

However, on their estimates cash flows were set to level out from 2020 to 2025 (excluding 300m linked to foreign exchange) as tailwinds from original equipment sales slowed and overhauls began en masse.

That was despite 'bullish' assumptions for trends in capital expenditures and research and development.

"In short, we believe 2020-2021 is a perfect storm for abnormally high cash generation and inappropriate for valuation without considering the investment cycle position."

Associated British Foods shares offer limited upside as profits will be dulled by lower European Union sugar prices, said Goldman Sachs as it downgraded its recommendation to 'neutral' from 'buy'.

Final results from AB Foods included group profit before tax of 1.3bn, earnings per share of 127.1p and net cash of 673m.

Following the results, Goldman lower its forecasts for sugar earnings before interest and tax (EBIT) for the 2018 and 2019 financial years by around 10% to reflect the lower EU sugar price.

Moreover, analysts cut their constant currency Primark revenue growth forecast by 300 basis points to 9% per year all the way out to FY 2022, assuming a return to store cannibalisation in Europe and a slowdown in space growth to +8% from +10%.

Sugar EBIT is expected to be 20m and 15m lower in 2018/19 respectively to 180m and 185m.

This means for 2018 PBT forecasts were reduced to 1.41bn and for 2019 to 1.49bn, EPS reduced to 136.41p and 145.08p.

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