EU Pharma has been the best performing sector in the EU market YTD (+17%). We continue to see upside in 2015 but believe stock selection is crucial. We see three categories of companies in the EU Large Pharma sector, each offering quality, transformation (margin and/or pipeline) and/or value.
Rating Target price Upside/Downside
AstraZeneca OUTPERFORM 5500p +15%
Bayer NEUTRAL €116 +2%
GlaxoSmithKline UNDERPERFORM 1330p -10%
Novartis OUTPERFORM CHF 105 +15%
Novo Nordisk NEUTRAL DKK 270 +2%
Roche OUTPERFORM CHF 335 +16%
Sanofi OUTPERFORM €86 +13%
* Roche: Outperform, TP CHF 335, +16% upside
Top of the table
Our Exane Pharma Champions League analysis puts Roche at the ‘Top of the Table’.
We believe Roche offers the best quality in Pharma capabilities as reflected in our
FIND IT, BUILD IT and SELL IT scores. This is borne out by Roche’s stable cash flows,
attractive long-term valuation and lower earnings volatility. Roche offers 10% pa EPS
growth (2014-18) vs sector average 11% pa but with less volatility around achieving
those earnings (Figure 4). The stock trades broadly in-line with peers on 19.0x 2015
EPS vs 19.7x average but looks attractive on EV/NPV of 0.89x vs sector 0.96x. We
recommend Roche as a core, quality Pharma holding at an attractive valuation today
see reports attached