Australia | Jul 12 2006
By Greg Peel
"We see little to attract investors to API", say the Deutsche Bank analysts. The prospects for Australian Pharmaceutical Industries (API) look more and more bleak, and share price weakness does not imply a buying opportunity, they suggest.
The new Pharmaceutical Benefit Scheme rules as established by the government have put more pressure on API margins. API’s competition is also playing an aggressively competitive game. And it appears another group may gain access to the pool.
Wholesaling is under threat and Deutsche has cut its forecast contribution accordingly, resulting in earnings forecast reductions of 7% in FY06 and 23% in FY07. The dividend may also be under threat, the analysts suggest.
Brokers in the FN Arena database have bowed to API’s problems over the course of this year. Aspect Huntley has downgraded from Buy to Hold, and Credit Suisse from Neutral to Underperform. SB Citigroup has given API away all together.
The current Buy/Hold/Sell ratio is 1/4/1. The Buy is Macquarie, but we haven’t heard from the analysts since December. Despite its grim predictions Deutsche has maintained Hold.
The reason Hold was maintained is likely because although the analysts have pulled the target all the way down from $3.00 to $2.00, yesterday’s closing price of $2.25 does not invoke a Sell. A bit earlier might have been nice. Despite API’s share price weakness. Deutsche does not advocate looking for oversold value.
The average target at present is $2.58, but Macquarie’s $3.25 is looking dated.