Australia | Jul 18 2006
By Terry Hughes
CSL’s (CSL) $108m bid for Zenyth Therapeutics (ZTL) seems to have been well received by the market, with the stock trading nearly a dollar higher at $50.98, though brokers have questioned the deal’s significance.
While most agree that the acquisition is strategically positive for the company, the valuation implications are seen as fairly minimal at this stage.
Zenyth is only in the early stages of product development, Merrill Lynch says, which is why the broker has made no changes to its valuation on CSL, while UBS says short term benefits are likely to be limited.
However, the broker does believe the deal will offer CSL a long term development pipeline, but at a cost of around $15m per year in research and development costs.
Deutsche Bank is also positive, pointing to the tremendous upside potential these kinds of deals provide for the future, although the analysts concede that it is difficult to price this today, so they haven’t.
As far as ABN Amro is concerned, the acquisition is likely to be earnings dilutive over the short term, but expected to provide long term upside.
Although some brokers have trimmed their target prices on the stock following the acquisition announcement, of the nine brokers and equity advisers in the FN Arena database that cover the stock, eight continue to rate it positively, and the average target price on the stock is $62.25.
Macquarie, stating that the Zenyth acquisition is fairly insignificant, is of the view that plasma industry strength will continue to drive earnings, while JP Morgan says the stock continues to look cheap in light of the expected 20% EPS growth the broker forecasts it will deliver over the coming four years.