Tag Archives: Health Care and Biotech

article 3 months old

ResMed Arises

 - ResMed quarterly well received
 - Margins stronger on improved product mix and efficiencies
 - Brokers lift forecasts and price targets
 - Competitive bidding concerns temper ratings


By Chris Shaw

Sleep disorder group ResMed ((RMS)) delivered a well received quarterly result, revenue of US$340 million largely in line with or better than expectations and earnings exceeding expectations thanks to an improvement in gross margins during the period.

BA Merrill Lynch suggests the key theme of the result, which saw earnings per share (EPS) of US50.5c come in 5% better than the broker had forecast, reflected a greater mix of high end APAP and Bi-Level Flow Generator sales.

As well, Deutsche Bank notes ResMed achieved some positive supply chain and manufacturing efficiency gains during the period that helped boost gross margin to 61.4%. This compares to Deutsche's forecast for margins of 60.7%. Management at ResMed has guided to gross margins remaining between 60-62% for the balance of FY13.

A contributing factor to the result in Macquarie's view was a healthy underlying market, as top line growth for the period was 12%. Macquarie suggests the solid gains achieved over the past few results should ease remaining concerns with respect to any slowdown and saturation in the market.

Changes to forecasts reflect this, as Macquarie has lifted earnings estimates for ResMed by 5-6% through FY15 post the quarterly report. Others have reacted similarly, as Deutsche's numbers have been increased by 7-8% and BA-ML by 8-10%. 

The changes have boosted price targets for the stock, as the consensus target for ResMed according to the FNArena database now stands at $4.17, up from $3.78 prior to the quarterly report. Targets range from JP Morgan at $3.72 to Citi at $4.67.

With the current share price implying upside of only around 5% relative to the consensus price target, broker ratings for ResMed remain split between Buy and Hold, with three Buy ratings and five Hold recommendations following a downgrade to Hold from Buy fro Credit Suisse, given a solid run in the share price.

One issue for UBS, which has a Neutral rating, is potential for further negative newsflow for ResMed in the next couple of months in relation to competitive bidding. While management expects minimal impact from the process, UBS cautions any negative outcome could see ResMed shares trade lower, so offering a better opportunity in the stock.

Macquarie also takes a cautious view with respect to competitive bidding, noting while little in the way of pricing pressure has been evident in round one regions and the process applies to only 25% of ResMed's volumes, there remains the potential for an earnings impact as the process continues. Macquarie rates ResMed as Neutral.

BA-ML retains a Buy rating on ResMed, suggesting the risks associated with competitive bidding are being reduced by a positive mix-shift as more high end products are sold. This is significant, BA-ML pointing out more irrational pricing, where competitive bidding may have the most significant impact, tends to occur in the low-end CPAP space.

As well, BA-ML takes the view the market is not fully appreciating the out-year potential of ResMed's market leading position on “informatics” systems, as well as the potential for gains from new product launches on coming years.

Citi agrees with BA-ML's Buy call on ResMed, noting the company should deliver EPS growth of 15-20% annually in coming years, with upside risk depending on foreign exchange moves and further share buybacks.


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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

As more companies use annual general meetings to confess on earnings guidance for FY13, changes to broker ratings have become weighted to the downside, with the past week seeing nine stocks upgraded compared to 27 downgrades. Total Buy recommendations in the FNArena database now stand at 42.77%.

Both Dexus Property ((DXS)) and IOOF Holdings ((IFL)) received two upgrades during the week. For Dexus, news the company intends to sell its remaining US assets to reinvest in the Australian market prompted Macquarie to move to a Neutral rating from Sell and JP Morgan to go one better and lift its rating to Buy from Neutral. In both cases the asset sale is seen as a likely positive catalyst for the stock.

Both Citi and Credit Suisse upgraded IOOF to Buy from Hold following the incorporation of the recent Plan B acquisition into earnings models, which resulted in increases to earnings estimates and price target. Credit Suisse also sees value given the stock is trading below historic average multiples.

Credit Suisse has also moved to a Buy rating from Hold on Goodman Fielder ((GFF)), this on the back of increases to earnings estimates given signs of improvement in the company's bread operations. The changes to forecasts resulted in an increase in price target.

With Archer Daniels Midland confirming an indicative proposal to acquire Graincorp ((GNC)), UBS has upgraded to a Buy rating from Hold previously to reflect the fact the stock is now in play. Given a potential list of suitors for Graincorp the broker has lifted its price target above the proposed offer price.

While Ten Network ((TEN)) delivered a disappointing full year result Deutsche Bank has upgraded to a Hold rating from Sell. While the long-term value in Ten's broadcasting licences is unlikely to be realised for some time, Deutsche takes the view the sale of the Eye Corp assets means a capital raising is now unlikely to be needed.

RBS Australia has upgraded WorleyParsons ((WOR)) to Buy from Hold post an investor day, largely on valuation grounds as both sector and peer multiples have improved in recent weeks. Changes to forecasts post the investor day saw some adjustments to price targets across the market.

JP Morgan was in a minority in upgrading OZ Minerals ((OZL)) to Hold from Sell post the company's quarterly production report. The lift in rating reflects the broker's view value is now less likely to be destroyed via merger and acquisition activity, while there is also seen to be a lack of negative catalysts for the share price at present.

Others didn't agree, as Citi, BA Merrill Lynch and Deutsche Bank all downgraded OZ Minerals during the week, the former to Hold from Buy and the others to Sell from Hold. Citi's downgrade reflects a lack of upside near-term given the stock is near valuation, while BA-ML takes the view rising costs will at some point have a more significant impact on earnings. Deutsche's downgrade is largely a valuation call.

A number of other stocks also received multiple downgrades, one being Mirvac Group ((MGR)). Both JP Morgan and Credit Suisse moved to Hold ratings from Buy following the group's quarterly update, both highlighting valuation as the reason for the rating change given recent gains in the share price.

National Australia Bank ((NAB)) saw both Macquarie and BA-ML downgrade, the former to Hold from Buy and the latter to Sell from Hold. Macquarie sees scope for the bank to have to deal with additional impairment charges in coming months given ongoing soft economic conditions, while BA-ML remains cautious on the outlook for the bank's UK assets as well.

Macquarie extended the weaker outlook to Westpac ((WBC)) as well, trimming earnings estimates and downgrading its rating to Underperform from Neutral.

Lower margin and revenue assumptions have seen estimates for Programmed Maintenance Services ((PRG)) lowered by Macquarie, while Credit Suisse has also adjusted down its forecasts and price target for the stock. In both cases the brokers have downgraded ratings to Neutral from Buy given an increasing risk profile.

SMS Management and Technology ((SMX)) delivered weaker AGM commentary than the market had expected and the resulting cuts to earnings estimates were enough for both Macquarie and UBS to downgrade to Hold ratings from Buy previously. Forecasts and price targets were lowered across the market.

It was a similar story for Treasury Wine Estates ((TWE)), where lowered guidance for the full year was enough for both Deutsche and UBS to downgrade to Sell ratings from Neutral recommendations previously.

On the resource side of the market BA-ML downgraded Alacer Gold ((AQG)) to Sell from Hold to reflect risk of further production disappointments following a weaker than expected quarterly production report.

Credit Suisse also downgraded Gindalbie ((GBG)) to Neutral from Sell following the incorporation of an equity raising for the Karara project into its model for the company. In the broker's view any such raising is unlikely to be well received by the market.

Citi has cut its rating on Oil Search ((OSH)) to Neutral from Buy following the company's quarterly, largely on a valuation basis as results for the period were broadly in line with expectations. Higher than expected costs saw UBS lower earnings estimates for Panoramic Resources ((PAN)) and when the potential need for additional funding is factored in the broker has moved to a Hold rating from Buy previously.

A weak September quarter production report from St Barbara ((SBM)) has left the market wanting more in the view of Deutsche, to the extent the broker has moved to a Neutral rating from Buy previously.

Among the industrials, BA-ML downgraded Ansell ((ANN)) to Sell from Hold on valuation grounds and RBS Australia has downgraded Australian Pharmaceutical Industries ((API)) to Hold from Buy on the same basis following the group's full year profit result. The result prompted changes to earnings estimates and price targets across the market.

RBS also downgraded both Biota ((BTA)) and Bradken ((BKN)) to Hold from Buy, the former as part of ceasing coverage on the stock given its imminent de-listing in Australia and the latter to reflect a full valuation given the expectation of a further softening in the group's markets.

Fletcher Building ((FBU)) saw a rating cut to Hold from Buy by Credit Suisse following solid share price gains, the broker noting the recent run in the stock has come before evidence the cycle has actually turned for building materials companies.

Credit Suisse also downgraded Goodman Group ((GMG)) to Sell from Hold on valuation grounds following a review of the REIT sector, while Deutsche downgraded Charter Hall Retail ((CQR)) on the same basis given the view the market is looking through Poland execution risk, where assets need to be sold to fund the group's development pipeline.

Lower earnings forecasts for SAI Global ((SAI)) given ongoing macro headwinds have been factored into JP Morgan's model, the result being the broker has downgraded to Neutral from Outperform to reflect additional pressure on the company to meet full year earnings expectations.

In terms of target price changes over the week only Australian Pharmaceutical enjoyed an increase of more than 10%, while Panoramic, SMS Management, Ten Network, Senex Energy ((SXY)) and Bradken saw targets reduced by 10% or more.

The cut in target for Senex came despite earnings forecasts being increased by more than 10%, the only stock in this category for the week. Cuts to earnings forecasts were most significant for Panoramic, Ten, Atlas Iron ((AGO)), BC Iron ((BCI)), Mount Gibson ((MGX)), Yancoal ((YAL)), Western Areas ((WSA)), GWA Group ((GWA)) and SMS Management. 


 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=110,89,93,90,75,121,142,113&h0=73,117,96,132,100,108,151,126&s0=57,29,43,12,43,39,13,19" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 DEXUS PROPERTY GROUP Sell Sell Macquarie
2 DEXUS PROPERTY GROUP Neutral Buy JP Morgan
3 GOODMAN FIELDER LIMITED Neutral Buy Credit Suisse
4 GRAINCORP LIMITED Neutral Buy UBS
5 IOOF HOLDINGS LIMITED Neutral Buy Citi
6 IOOF HOLDINGS LIMITED Neutral Buy Credit Suisse
7 OZ MINERALS LIMITED Sell Neutral JP Morgan
8 TEN NETWORK HOLDINGS LIMITED Sell Neutral Deutsche Bank
9 WORLEYPARSONS LIMITED Neutral Buy RBS Australia
Downgrade
10 ALACER GOLD CORP Neutral Sell BA-Merrill Lynch
11 ANSELL LIMITED Neutral Sell BA-Merrill Lynch
12 AUSTRALIAN PHARMACEUTICAL INDUSTRIES Buy Neutral RBS Australia
13 BIOTA HOLDINGS LIMITED Buy Neutral RBS Australia
14 BRADKEN LIMITED Buy Neutral RBS Australia
15 CHARTER HALL RETAIL REIT Buy Neutral Deutsche Bank
16 FLETCHER BUILDING LIMITED Buy Neutral Credit Suisse
17 GINDALBIE METALS LTD Buy Neutral Credit Suisse
18 GOODMAN GROUP Neutral Sell Credit Suisse
19 MIRVAC GROUP Buy Neutral JP Morgan
20 MIRVAC GROUP Buy Neutral Credit Suisse
21 NATIONAL AUSTRALIA BANK LIMITED Buy Neutral Macquarie
22 NATIONAL AUSTRALIA BANK LIMITED Neutral Sell BA-Merrill Lynch
23 OIL SEARCH LIMITED Buy Neutral Citi
24 OZ MINERALS LIMITED Buy Neutral Citi
25 OZ MINERALS LIMITED Sell Sell BA-Merrill Lynch
26 OZ MINERALS LIMITED Neutral Sell Deutsche Bank
27 PANORAMIC RESOURCES LIMITED Buy Neutral UBS
28 PROGRAMMED MAINTENANCE SERVICES LIMITED Buy Neutral Macquarie
29 PROGRAMMED MAINTENANCE SERVICES LIMITED Buy Neutral Credit Suisse
30 SAI GLOBAL LIMITED Buy Neutral JP Morgan
31 SMS MANAGEMENT & TECHNOLOGY LIMITED Buy Neutral Macquarie
32 SMS MANAGEMENT & TECHNOLOGY LIMITED Buy Neutral UBS
33 ST BARBARA LIMITED Buy Neutral Deutsche Bank
34 TREASURY WINE ESTATES LIMITED Neutral Sell UBS
35 TREASURY WINE ESTATES LIMITED Neutral Sell Deutsche Bank
36 WESTPAC BANKING CORPORATION Neutral Sell Macquarie
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 IFL 17.0% 50.0% 33.0% 6
2 PRY 25.0% 38.0% 13.0% 8
3 GFF 13.0% 25.0% 12.0% 8
4 CBA - 25.0% - 13.0% 12.0% 8
5 TEN - 50.0% - 38.0% 12.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 SXY 100.0% 33.0% - 67.0% 3
2 SMX 75.0% 25.0% - 50.0% 4
3 PAN 100.0% 67.0% - 33.0% 3
4 API 50.0% 20.0% - 30.0% 5
5 PRG 100.0% 71.0% - 29.0% 7
6 MGR 57.0% 29.0% - 28.0% 7
7 NAB 13.0% - 13.0% - 26.0% 8
8 TWE - 38.0% - 63.0% - 25.0% 8
9 ARP 50.0% 25.0% - 25.0% 4
10 BKN 86.0% 71.0% - 15.0% 7
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 API 0.408 0.520 27.45% 5
2 KMD 1.467 1.575 7.36% 3
3 IFL 6.242 6.517 4.41% 6
4 PRY 3.688 3.756 1.84% 8
5 MGR 1.470 1.490 1.36% 7
6 GFF 0.593 0.600 1.18% 8
7 CBA 53.606 54.196 1.10% 8
8 ARP 9.660 9.763 1.07% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 PAN 1.083 0.883 - 18.47% 3
2 SMX 6.405 5.458 - 14.79% 4
3 TEN 0.481 0.421 - 12.47% 8
4 SXY 0.995 0.877 - 11.86% 3
5 BKN 7.439 6.641 - 10.73% 7
6 SGM 13.314 12.600 - 5.36% 6
7 AQG 7.599 7.294 - 4.01% 8
8 BBG 0.980 0.951 - 2.96% 8
9 CGF 4.439 4.310 - 2.91% 7
10 PRG 2.656 2.594 - 2.33% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 SXY 2.000 2.300 15.00% 3
2 WPL 228.066 243.421 6.73% 8
3 CLO 8.633 9.000 4.25% 3
4 API 4.660 4.840 3.86% 5
5 SUL 60.443 61.357 1.51% 7
6 IFL 44.743 45.386 1.44% 6
7 GFF 5.413 5.488 1.39% 8
8 STO 61.988 62.763 1.25% 8
9 EVN 18.100 18.317 1.20% 6
10 QBE 131.511 132.748 0.94% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 PAN 0.125 - 2.075 - 1760.00% 3
2 TEN 1.675 0.689 - 58.87% 8
3 AGO 10.113 5.913 - 41.53% 8
4 BCI 69.967 51.267 - 26.73% 3
5 MGX 21.175 16.388 - 22.61% 8
6 YAL 66.460 53.820 - 19.02% 5
7 WSA 17.314 14.814 - 14.44% 7
8 GWA 13.983 12.267 - 12.27% 6
9 SMX 38.680 34.420 - 11.01% 4
10 SXL 14.950 13.663 - 8.61% 7
 

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

Weekly Broker Wrap: A Little Bit More Optimism

By Andrew Nelson

We’ll start off this week’s wrap with what fund managers from around the world have to say about financial markets in October 2012. Last week, analysts at Bank of America-Merrill Lynch put out the findings from their Global Fund Manager Survey and while they don’t claim that funds managers are bursting with optimism, they do note that there is an ongoing if cautious shift towards growth.

However, we’re still a long way away from needing to book any party space, or to start printing the invitations, with the broker noting a still large allocation to cash holdings. As far as growth goes, BA-ML notes fund managers like US domestic demand growth plays, as opposed to value plays like Japan and Resources.

Sentiment is certainly improving, if slowly. The survey shows that 20% of respondents expect the global economy to get stronger. This is up from 17% last month. However, the broker notes a majority of those polled also expect weaker profit growth, with China growth expectations especially taking a hit. Only 5% of investors now expect above-trend growth from the Middle Kingdom in 2013. 

What are they afraid of? 42% put the US fiscal cliff on the top of their tail risk list, with the EU debt crisis garnering just 27%. The bigger issue here, however, is that only 20% believe the cliff is actually priced into equities at the moment. And while cash holding may still be high, cash balances have pulled back to 4.3% from 4.5%. That means the broker’s Cash Rule buy signal is also terminated after 5 months.

There was a small shift to equities from bonds in October, seeing the largest positive moves to commodities in the last six months. The analysts also see a shift in preference to corporate bonds, and when asked how more exposure to high beta equities would be funded, 37% said government bonds, 33% responded with cash and 19% would sell defensive equities, while only 4% would reallocate from corporate bonds.

With less money heading to Japan, equity funds made their way to emerging markets, the UK and the eurozone. BA-ML notes this is the first time in almost 2 years that eurozone equity weightings matched that of US. 72% think the yen is overvalued, 53% think the euro is overvalued, while just 16% think the US dollar is overvalued.

The sectors that saw the best support in October were Tech and Pharma, while Banks and Utilities were the least liked. Otherwise, investors remain long on US domestic demand plays like Consumer Discretionary and are very short China-plays such as Energy and Materials.

The next cab off the rank was a new assessment of the small to medium business (SMB) segment of the Australian telecom services market from analysts at Goldman Sachs, prompted by the broker picking up coverage of M2 Telecommunications Group ((MTU)).

The broker estimates the SMB market size is somewhere in the neighbourhood of $7bn in revenues, or about 20% of total telecom market revenues. The market is comprised of about 735,000 businesses with 2-20 seats and around 84,000 businesses with 21-200 seats.

However, what really makes this segment of the market unique is that of all the telecom industry market segments, the broker notes the SMB segment is the most leveraged to the economy. Goldman’s points out that during periods of slower economic growth, SMB spending on IT&T contracts as businesses look to reduce overheads and conserve capital.  The broker sees this as being one of the main reasons that during periods of slow economic activity and weak business confidence, like 2009 and 2012, SMB telecom market revenues slow significantly.

On the broker’s numbers, Telstra ((TLS)) currently owns the SMB market with a 65%-70% share. Next is SingTel’s ((SGT)) Optus at 10%-15%, while up and comer MTU has become the third largest player in the SMB market, with around a 5% share.   

While Goldman’s notes Telstra is best positioned to compete in the SMB space given its range of products and expanded distribution, the broker also believes it will be tough for Telstra to squeeze that much more juice from this orange given its already dominant share, increasing levels of competition and high price points. 

The broker believes both iiNet ((IIN)) and TPG Telecom ((TPM)) are looking at the SMB market as the next big opportunity, with TPM likely to cause some disruption on the price front. However, the broker also thinks both companies lack a sufficient enough distribution footprint to cause too many headaches. As a reseller, MTU cannot differentiate on price, but it does have a nationwide dealer network. A-Ha!

Goldman Sachs has initiated coverage on M2 Telecommunications with a Neutral call. Looking at the FNArena Database shows us one Buy call from Citi, who just initiated coverage last month.

Macquarie put out an interesting comment on Banks and bank rates last week, noting once again the nation’s major lenders have stood firm with deposit rates after the prior week’s surprise 25bps cut from the RBA.  

The broker notes this decision has seen deposit competition intensify to levels not seen since May and could mean the banks have reached the tipping point in terms of deposit prices. While Macquarie admits this is positive from a loan-to-deposit ratio (LDR) perspective and also positive in terms of getting ready for the raft of new liquidity requirements, Macquarie worries the inability to pass on rate cuts to deposits could come at a significant margin cost to the banks.

Macca’s notes the average major bank’s cost of deposits has increased between 6-11bps since the October rate cut. This adds up to $0.2-$0.7m cost to the majors every day they delay reducing term deposit rates. It’s true the majors are clawing some back via out-of-cycle standard variable rate (SVR) re-pricing, they are still running at a loss, losing $0.50m more a day compared to two weeks ago.

This latest development sees a shift in the broker’s sector preferences, removing its long National Australia Bank ((NAB)) position in favour of its most preferred stock, ANZ Bank ((ANZ)). The revised pairs trade Long ANZ/Short Westpac ((WBC)) play on cost-out work, earnings momentum and less exposure to the mining states.

Lastly, analysts at Morgan Stanley had a few things to say about a few sectors last week. First, the broker has called the end of the boom years for consumer electronics retailers. The broker notes industry profits remain pressured for four reasons: technological improvements are slowing, there are too many stores, products and purchasing channels are both becoming digitized and Apple is out there eating everyone’s lunch. The view saw the broker downgrade JB HiFi ((JBH)) to Underweight last week, with Harvey Norman ((HVN)) already there.

The broker also notes the Healthcare sector has been on a bit of a tear despite net in-line earnings delivery and relatively flat outlook commentary. Healthcare PE re-ratings have been the dominant driver and the broker believes the currently rich valuations are likely to be sustained until market EPS trends reverse. In the meantime, or until earnings revisions reverse, healthcare is likely to maintain its premium to fair value, says Morgan Stanley.
 

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article 3 months old

Treasure Chest: CSL Re-Rating Overdue

By Greg Peel

Last week brokers were generally a bit downbeat on blood fractionator CSL ((CSL)) following upbeat news from rival Baxter. Eli Lilly – a new contender in the ring – has announced positive trials of its new competing product but it's very early days and approval, and thus any threat to CSL's market share, is a long way off. Not so for Baxter however, which is proving a worthy opponent and has just signed a distribution deal of its Advate product with the Brazilian government. 

Deutsche Bank saw the deal as threatening a small loss of low-margin sales for CSL, but the analysts conceded that sales of plasma-derived coagulents (12% of CSL revenue) are generally under pressure. RBS went one step further in suggesting Baxter's updated guidance suggests the glory days of CSL global market domination are drawing to a close. The analysts cannot see further double-digit earnings growth ahead.

UBS, however, has been concentrating its analysis on the first step in the fractionation process – plasma collection. To that end, the UBS analysts recently set off on a field trip to the US.

To set the scene, one must appreciate, UBS points out, that a litre of blood collected today will not impact on CSL's revenue line until early FY14 given fractionation takes up to nine months. The field trip has convinced UBS that CSL is planning to grow “above market” in the next fiscal year through a 10% plus increase in plasma collection. The figure may even be higher given ten new collection centres being opened. 

The industry itself suggests fractionation demand is robust and growing 8-10% globally, and UBS forecasts that the closure of a Baxter plant for refurbishment in FY13 will create around a 15% potential growth window for competitors in 2013 with meaningful volume returns appearing in 2014.

It is important to note blood fractionators set their collection volume targets for the year and once this is known, the material component of that company's growth outlook is set. On the basis of what the UBS analysts have learned, they have upgraded their FY14 plasma volume growth by 11% and this translates into a 3.2% increase in forecast earnings.

But wait, there's more.

UBS further reports that “break-out sessions” at the recent World Federation of Haemophilia global conference on CSL's recombinant clotting factors were “very encouraging”. UBS has fiddled its numbers to account for expectations CSL's rFIX and rFVIII enter pivotal trials in the next six months. The net effect is an R&D valuation gain of 80% or $5.50ps.

“Given limited visibility on trials to date,” says UBS, “we rate the upgrade as 'overdue'”.

UBS has increased its twelve month price target for CSL to $52.00 from $46.60 and upgraded its recommendation to Buy from Neutral.

The rating upgrade brings to four the number of Buy ratings for CSL in the FNArena database, accompanied by four Holds. Valuation is an issue for some brokers as evidenced by the consensus target of $45.79 (including the UBS increase) sitting 3% below the current traded price, as shown in FNArena's Stock Analysis. This puts CSL in danger of drawing attention from FNArena's Icarus Signal.
 

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article 3 months old

Treasure Chest: Pharmaxis Back In Focus

Healthcare analysts at RBS, Scott Power, Tanya Solomon and Jack McManus suggest this morning shares in local biotech Pharmaxis ((PXS)) look good value at present levels.

Why?

The analysts participated in the quarterly investment call last week which (obviously) re-affirmed their positive stance on the company and its outlook. Equally important, probably, the analysts report there is some takeover speculation surfacing. The RBS trio reiterates the Buy recommendation while lifting the price target to $1.53 from $1.30 prior. The shares last traded for $1.34 on Friday.

Amongst the positives derived from the investment call is the fact that feedback from the centres in Germany has been "uniformly positive" and RBS is now talking about "momentum improving" for Pharmaxis.

Investors should also note the following positives (lined up by RBS):

- in Australia, Bronchitol has been approved for marketing to people with cystic fibrosis aged 6 years and over since early 2011 but has only recently been listed on the Pharmaceutical Benefits Scheme;

- the application is through a New Drug Application (NDA) and it is currently in active and detailed review by the FDA, with a target date for completion of the review of 18 March 2013

On current forecasts, Pharmaxis is not expected to turn profitable until fiscal 2015 and the company is anticipated to start paying a dividend from that year onwards (projected 2c).


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article 3 months old

Bionomics Acquisition A Plus

- Bionomics expands into cancer stem cell sector
- Bell Potter sees longer-term upside potential from the move
- Reiterates Buy rating 


By Chris Shaw

For some time Bionomics ((BNO)) has been developing two lead products, one an anti-anxiety drug (BNC210) and one a cancer treatment (BNC105). The latter has proven to be effective in treating solid tumours and as a vascular disrupting agent.

Bionomics has now expanded via the acquisition of Eclipse Therapeutics in the US for US$10 million via the issue of Bionomics shares. As Bell Potter notes, Eclipse is a cancer stem cell development company, with two programs built around antibodies to cancer stem cell targets.

Bell Potter expects the first of the two programs being acquired will go to clinical trials in 2014, the long lead time being offset by the fact the acquisition improves the market position of Bionomics in the emerging cancer therapeutics market space.

The cancer stem cell sector is becoming increasingly important, as Bell Potter points out traditional chemotherapy drugs can eradicate most cancer cells but not cancer stem cells. The ability to knock out cancer stem cells could, in theory, prevent cancers from recurring.

This sector of the market is attracting increased interest from investors, Bell Potter pointing out a similar company, Verastem, conducted a successful Nasdaq IPO in January of this year by raising US$55 million. 

As well, in recent years Bell Potter notes there has been increasing activity among major drug companies looking to establish a foothold in the sector though both partnership agreements and mergers and acquisitions.

Given the longer time-line associated with developing the stem cell programs acquired with the Eclipse acquisition, Bell Potter sees developments with respect to BNC210 and BNC105 as the main drivers of the Bionomics share price in the medium-term.

In this respect news flow is expected to be solid, given a number of pre-clinical and clinical data announcements expected over the next 12 months. As an example, Bell Potter sees potential for BNC105 to be licensed in the second half of 2013, ahead of trial and interim data from ovarian cancer trials due in the first half of 2014. 

Bell Potter suggests any licensing deal would likely provide sufficient funds to invest in the rest of the development pipeline of Bionomics. A further positive is a previous partnership deal with Ironwood Pharmaceuticals of the US for BNC210, which provides US$345 million in upfront and milestone payments. 

A further US$10 million is to be injected into Bionomics before January of next year, enough to see the company broadly self-sustaining given the amount is more than the current annual burn rate on Bell Potter's numbers.

Aside from BNC210 and BNC105, Bionomics has other valuation drug discovery technology. Bell Potter suggests the proprietary Multicore, Angene and ionX drug and target discovery platforms offer an engine for future growth, something likely to be viewed attractively by potential acquirers in the sector.

As an example, Bell Potter notes Bionomics has a program for Alzheimer's Disease planned, for which there is currently no partner in place.

Adjusting its model for the Eclipse acquisition, Bell Potter now values Bionomics at $1.67 on a base-case scenario and $2.25 using more optimistic assumptions. The price target has been set at the lower end of this range at $1.70 and Bell Potter rates Bionomics as a Buy.

Given a current share price of around $0.35, Bell Potter sees significant scope for Bionomics to be re-rated as progress is made in clinical trials. Others in the market have not followed the story, as with a current market capitalisation of around $120 million none of the broker's in the FNArena database provide coverage on Bionomics. 

Shares in Bionomics today are higher in a weaker overall market and as at 11.10am the stock was up 1c at $0.385. This compares to a range over the past 12 months of $0.24 to $0.62.


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article 3 months old

Phosphagenics Still Patched In

 - Bell Potter retains Buy rating on Phosphagenics
 - Broker sees upside from drug patch technology
 - Minor drug crystallisation issue should be resolved
 - Other markets such as cosmetics offer further growth potential


By Chris Shaw

Since 2006, Australian-listed biotech Phosphagenics ((POH)) has demonstrated its Targetted Penetration Matrix (TPM) technology can transdermally deliver therapeutic doses of drugs that until now have not had such a delivery option. Transdermal delivery means through the skin and the TPM patches of Phosphagenics have been shown to work efficiently without skin irritation or inflammation.

Success in developing the TPM patches leads Bell Potter to suggest Phosphagenics has the potential to develop the world's first patches for oxycodone, an analgesic drug, and for insulin. The former is estimated to represent a market of at least US$3 billion in the US, while the latter offers a potential US$14-$15 billion global market.

Earlier this year Phosphagenics announced its TPM/oxycodone patches had encountered a minor drug crystallisation issue, which saw the company retain Germany's Labtec to help deal with the problem. Bell Potter expects the matter will be resolved this year, allowing Phase III clinical work to begin in the first quarter of next year. This is about six months behind the previous timeline.

Bell Potter suggests the drug crystallisation in patches issue for Phosphagenics is an engineering problem rather than a research problem and so should be relatively easy to resolve. Bell Potter expects Phosphagenics will be on course to file for FDA approval for its patches sometime in 2014.

While the oxycodone opportunity is significant for Phosphagenics there are also other potential markets for its patches. As Bell Potter points out, in April the company signed a licensing agreement with Indian drug company Intas for the manufacturing and distribution of three TPM-based anti-ageing cosmeceutical products.

If the anti-ageing products in India prove to be successful, the broker expects a full line of dermatological products to be launched in the Indian market. This offers a potentially lucrative growth opportunity for Phosphagenics.

Distribution agreements for POH's cosmeceutical products in markets such as Australia and Europe have also been reached, while Bell Potter expects the products will also enter the US market later this year. 

From a financial perspective, Bell Potter notes cash on hand at the end of June of $21.6 million means POH is funded for Phase III trials with TPM/oxycodone. Any potential licensing deal would help fund the cost of the trial. 

Modest changes to the broker's earnings forecasts for POH have not impacted significantly on valuation. Bell Potter now has a base case value on the stock of $0.42, rising to $0.79 on more optimistic assumptions. This compares to a previous valuation range of $0.39 to $0.82. The broker has set its target price of $0.40 at the bottom of its valuation range.

With news flow for Phosphagenics is likely to be strong in the coming year, Bell Potter retains a Buy rating on the stock. A market capitalisation of less than $130 million means limited coverage of POH, as none of the eight brokers in the FNArena database provide research on the company.
 

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article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has been fairly evenly balanced in terms of ratings changes by the eight brokers in the FNArena database, with seven ratings upgraded and ten downgraded during the period. Total Buy ratings now stand at 44.64%.

Among the upgrades were two resource plays, Atlas Iron ((AGO)) and Regis Resources ((RRL)). Atlas was upgraded by UBS to Neutral from Sell, as despite the weaker iron ore price the broker suggests Atlas has enough liquidity to meet its capex, dividend and tax requirements in FY13. Recent share price weakness has improved the value on offer enough for UBS to upgrade.

For Regis Resources, full year earnings showed a strengthening of the group's balance sheet, while Deutsche continues to see value as production increases from the combination of the Moolart Well and Garden Well projects and dividends from the company come closer to reality. Deutsche has lifted its rating to Buy from Hold, while also lifting its price target on the stock.

Among the industrials, UBS upgraded Breville Group ((BRG)) to Buy from Neutral given the expectation the company can continue to grow its share of the US market. Breville's profit result prompted changes to earnings forecasts and the result was an increase in UBS's price target for the stock.

While forecasting lower average income growth in the office sector in FY13, JP Morgan continues to like the quality of Dexus's ((DXS)) portfolio, while the broker also sees scope for an increase in payout ratios in coming years. This is enough for an upgrade to a Neutral rating from Underweight previously.

Sigma Pharmaceuticals ((SIP)) delivered a better interim profit result than Macquarie had forecast, the result being increases to estimates in coming years. Macquarie's price target increased as well and on valuation grounds the broker has upgraded to a Neutral rating from Sell.

Deutsche Bank upgraded both Leighton Holdings ((LEI)) and Myer ((MYR)) to Buy ratings this week, in both cases from Hold previously. For Leighton, Deutsche suggests the market is pricing in too much risk, particularly given the company is primarily exposed to low cost mines and committed LNG projects within its resource sector activities. There are also some potential balance sheet positives such as a sale of NextGen, which is enough to justify a more positive view at current share price levels.

With respect to Myer, an improvement in gross margin was the highlight of the full year profit result in Deutsche's view. Top line growth continues to look difficult to achieve but the stock offers an attractive yield and some longer-term value at current levels in the broker's view, which supports the upgrade in rating.

On the downgrade side of the ledger UBS has cut its rating on Ansell ((ANN)) to Sell from Neutral, the change something of a relative valuation call given the company is seen to have less defensive earnings than others in the sector. The downgrade in rating comes despite an increase in price target.

UBS also downgraded Brambles ((BXB)) to a Hold rating from Buy, again on valuation grounds following an 8% rally in the share price since full year earnings were announced in August. As UBS notes, the stock is now trading broadly in line with valuation.

Aquarius Platinum ((AQP)) has been downgraded by BA Merrill Lynch to Sell from Hold as part of a reinstatement of coverage. With two mines on care and maintenance the broker sees a turnaround as reliant on improving operations at Kroondal, which is currently operating at a loss. When political risk is added to the equation BA-ML sees little upside for the stock in the shorter-term.

Credit Suisse has similarly downgraded Envestra ((ENV)) to Sell from Hold, this coming after changes to estimates to account for expectations of upcoming draft regulatory decisions. The cuts to forecasts impacted on the broker's price target, while the rating downgrade is a valuation call by Credit Suisse.

The Reject Shop ((TRS)) was also downgraded to Sell from Hold by Credit Suisse, this after recent share price outperformance suggests limited further upside from current levels. While group gearing should improve with Ipswich DC flooding claims being finalised, Credit Suisse expects tough operating conditions will continue for some time.

Recent share price strength has been enough for Citi to downgrade Insurance Australia Group ((IAG)) to Hold from Buy, as even allowing for an increase in price target the broker doesn't see enough upside from current levels to justify a more positive rating. 

JP Morgan has made two downgrades over the week, lowering ratings on both Southern Cross Media ((SXL)) and Toll Holdings ((TOL)) to Sell from Hold. For Southern Cross, still tough TV conditions lead the broker to suggest further cuts to consensus earnings estimates are unlikely, something that will act to limit potential share price upside.

In Toll's case, JP Morgan suggests a focus on market share is generating some domestic margin pressure and this suggests earnings headwinds are likely to remain in place for some time. Along with the downgrade in rating, the broker has trimmed earnings forecasts and price target.

OnTheHouse Holdings ((OTH)) delivered a result better than RBS Australia had forecast for FY12, but the broker expects FY13 will see earnings pumped back into the online business an in attempt to ensure longer-term growth. This is enough to prompt a downgrade to a Hold rating from Buy.

Macquarie has similarly downgrade Woodside ((WPL)) to Hold from Buy, this as a result of taking a less bullish view on the outlook for Australian LNG plays given the expectation of increasing competition in the global market. This view prompted cuts to earnings estimates and the broker's price target for the stock.

With respect to changes to price targets, the largest increases were seen in Webjet ((WEB)) and Sigma, while the largest decrease was in NRW Holdings ((NWH)). Only the latter saw a change of more than 10%.

Changes to earnings estimates were more significant, with Aquarius seeing the largest increase in forecasts and Panoramic Resources ((PAN)), Lynas ((LYC)) and Gindalbie ((GBG) experiencing the largest cuts to earnings expectations.  

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=114,91,103,91,74,130,140,116&h0=76,116,91,130,97,100,154,125&s0=50,26,38,9,45,36,10,15" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 ATLAS IRON LIMITED Sell Neutral UBS
2 BREVILLE GROUP LIMITED Neutral Buy UBS
3 DEXUS PROPERTY GROUP Sell Neutral JP Morgan
4 LEIGHTON HOLDINGS LIMITED Neutral Buy Deutsche Bank
5 MYER HOLDINGS LIMITED Neutral Buy Deutsche Bank
6 REGIS RESOURCES LIMITED Neutral Buy Deutsche Bank
7 Sigma Pharmaceuticals Ltd Sell Neutral Macquarie
Downgrade
8 ANSELL LIMITED Neutral Sell UBS
9 AQUARIUS PLATINUM LIMITED Neutral Sell BA-Merrill Lynch
10 BRAMBLES LIMITED Buy Neutral UBS
11 ENVESTRA LIMITED Neutral Sell Credit Suisse
12 INSURANCE AUSTRALIA GROUP LIMITED Buy Neutral Citi
13 ONTHEHOUSEHOLDINGS LIMITED Buy Neutral RBS Australia
14 SOUTHERN CROSS MEDIA GROUP Neutral Sell JP Morgan
15 THE REJECT SHOP LIMITED Neutral Sell Credit Suisse
16 TOLL HOLDINGS LIMITED Neutral Sell JP Morgan
17 WOODSIDE PETROLEUM LIMITED Buy Neutral Macquarie
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 PAN 67.0% 100.0% 33.0% 3
2 BRG 67.0% 100.0% 33.0% 3
3 SIP - 14.0% 14.0% 28.0% 7
4 DXS - 29.0% - 14.0% 15.0% 7
5 BSL 43.0% 57.0% 14.0% 7
6 RRL 57.0% 71.0% 14.0% 7
7 AGO 50.0% 63.0% 13.0% 8
8 WEB 25.0% 33.0% 8.0% 3

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 AQP 40.0% 20.0% - 20.0% 5
2 CTX - 33.0% - 50.0% - 17.0% 6
3 ARI 83.0% 67.0% - 16.0% 6
4 GPT - 14.0% - 29.0% - 15.0% 7
5 NWH 86.0% 71.0% - 15.0% 7
6 BXB 86.0% 71.0% - 15.0% 7
7 ANN 29.0% 14.0% - 15.0% 7
8 IAG 38.0% 25.0% - 13.0% 8
9 NCM 38.0% 25.0% - 13.0% 8
10 SUN 88.0% 75.0% - 13.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 WEB 3.580 3.917 9.41% 3
2 SIP 0.627 0.681 8.61% 7
3 BRG 5.683 6.117 7.64% 3
4 RRL 4.686 4.844 3.37% 7
5 ANN 15.060 15.226 1.10% 7
6 GPT 3.500 3.534 0.97% 7
7 IAG 4.079 4.098 0.47% 8
8 CTX 14.060 14.110 0.36% 6
9 CHC 2.656 2.663 0.26% 6

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 NWH 3.924 3.516 - 10.40% 7
2 PAN 1.175 1.083 - 7.83% 3
3 ARI 1.238 1.172 - 5.33% 6
4 AGO 2.299 2.236 - 2.74% 8
5 SXL 1.501 1.471 - 2.00% 8
6 WPL 40.359 40.171 - 0.47% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 AQP 2.608 3.387 29.87% 5
2 COH 274.738 281.325 2.40% 8
3 SIP 4.657 4.757 2.15% 7
4 GPT 23.957 24.129 0.72% 7
5 QRN 21.075 21.200 0.59% 7
6 RMD 19.962 20.004 0.21% 8
7 WPL 223.107 223.443 0.15% 8
8 WDC 63.775 63.813 0.06% 8
9 SGP 28.914 28.929 0.05% 7
10 HZN 2.081 2.082 0.05% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 PAN 4.400 0.125 - 97.16% 3
2 LYC 1.800 0.600 - 66.67% 5
3 GBG 4.567 3.617 - 20.80% 6
4 AGO 12.763 11.513 - 9.79% 8
5 FMG 53.948 49.840 - 7.61% 8
6 RRL 60.529 56.286 - 7.01% 7
7 GRR 6.933 6.517 - 6.00% 6
8 MGX 24.363 22.963 - 5.75% 8
9 NWH 41.086 39.543 - 3.76% 7
10 BHP 280.180 271.866 - 2.97% 8
 

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

Neuren Adds Parkinson’s To Future Potential

 - Neuren developing compound for Parkinson's Disease patients
 - NNZ-2591 showing promise in treating both dementia and movement
 - Parkinson's is a significant market opportunity
 - Drug adds to Neuren's attractive development pipeline
 - Bell Potter reiterates Buy rating

By Chris Shaw

Neuren Pharmaceuticals ((NEU)) previously attracted the attention of Bell Potter given the potential of the company's NNZ-2566 drug for treating Traumatic Brain Injury and for Autism Spectrum Disorders (see: Neuren Story Getting Better, FNArena, 25/5/12). 

Bell Potter now sees another reason why the Neuren story is attractive, as the group's pre-clinical NNZ-2591 drug is showing promise in the treatment of Parkinson's Disease. The drug is a Glypromate-derived dipeptide, where Glycine and Proline are formed into a diketopiperazine (DKP).

Over the past 10 years Neuren's research has shown NNZ-2591 works in animal models of Parkinson's, is 100% orally-available and appears to have a clean safety profile. Additional studies have shown some success in addressing mild cognitive impairment, which implies the drug could be used to treat dementia in Parkinson's patients.

This is significant, as Bell Potter notes possibly 20-30% of patients with Parkinson's Disease develop dementia. At present only the Exelon drug of Novartis treats Parkinson's dementia, so given NNZ-2591 appears able to address both dementia and movement, it could become the first drug for Parkinson's patients to address both disease states.

Given around 900,000 Americans are estimates to have Parkinson's Disease and the disease impacts on 7-10 million people worldwide, Bell Potter sees a potential multi-billion dollar global market. Another attraction is a Parkinson's dementia drug could be very cost effective as at least one study has shown Parkinson's patients with dementia cost the healthcare system three times as much as non-demented patients.

One advantage of Neuren with respect to NNZ-2591, notes Bell Potter, is Parkinson's is not featured heavily in the late stage pipelines of Big Pharma companies. This opens up potential for Neuren with respect to partnering deals.

Given the early stage of work on NNZ-2591, none of the potential upside is factored into Bell Potter's valuation of Neuren. Valuation stands at $0.17 on a base-case basis and $0.21 on more optimistic assumptions.

The medium-term key for Neuren remains NNZ-2566, which continues to show promise in testing. Success in clinical trials for oral NNZ-2566 are likely to strengthen Neuren's value proposition in Bell Potter's view. This would also improve the attractiveness of the drug to potential licensees.

As current NNZ-2566 Phase II trials come to a close, a licensing deal becomes more likely. This, suspects Bell Potter, would trigger a significant re-rating for the stock. The next catalyst is likely to be a filing for an oral NNZ-2566 Phase II trial for treating Rett Syndrome, a type of Autism Spectrum Disorder, in October. Results from a recent Phase I trial are due in coming weeks. 

Traumatic Brain Injury trials for NNZ-2566 continue, with Bell Potter expecting completion of the current trial by the middle of next year. The US government is funding the Phase II trial for NNZ-2566 in treating Traumatic Brain Injury.

A Phase II trial of Motiva,which targets post stroke apathy, is also continuing and is fully funded via a grant. Bell Potter also sees a large market opportunity for Motiva given a high number of stroke survivors suffer from Apathy Syndrome.

With a price target set in line with its base case valuation of $0.17, Bell Potter continues to see significant upside in Neuren. This means no change to the broker's Buy rating. With a market capitalisation of just over $25 million there is not a lot of coverage of Neuren, as none of the brokers in the FNArena database provide coverage on the company.

In a weaker overall market shares in Neuren today are up slightly, trading 0.1c higher at 2.4c as at 10.25am. This compares to a range over the past year of 1.4c to 3.7c. 


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article 3 months old

Healthcare Sector Overbought?

- Healthcare sector has outperformed index in Australia ytd
- Brokers debate whether overvaluation is implied
- Potential for switch to "risk on"
- Stock preferences noted


By Greg Peel

Australia's large-cap healthcare sector has been able to deliver FY12 earnings growth, the recent reporting season confirmed, albeit in line with expectations, which has given investors two reasons to buy: said growth, and defensive qualities in the pervading “risk off” environment. The ASX200 healthcare index ((XHJ)) outperformed the ASX200 Industrials by 7% in August and the general index by 5%, and is up around 24% year to date.

This is not, typically, how a “defensive” is meant to work. Defensives are meant to outperform by not falling as much as high beta stocks in weak markets while offering stable but uninspiring growth in strong markets. The ASX200 index is net higher year to date but in a volatile market, yet healthcare has outperformed.

RBS Australia can see why the sector may continue to attract interest given the potential for further volatility on three fronts, being a lingering recession in Europe, sluggish growth in the US in the run-up to Washington's “fiscal cliff” and concern in the resource sector with regard to a slowing China and persistently strong Aussie dollar. However RBS also foresees an investor shift towards greater levels of risk as multiple rounds of quantitative easing play out around the globe. Correlation statistics are suggesting a fixation on the global economy is beginning to wane as investors focus more on individual corporate profits.

The large-cap healthcare sector is now showing a price/earnings ratio 16% above its three-year mean, RBS notes, and mean reversion would suggests 10% downside. The analysts are still keen on the sector on a longer term basis but see now as a good time to take profits in those stocks for which the market has already discounted earnings risk over the near term, being Ramsay Health Care ((RHC)), Primary Health Care ((PRY)) and Sonic Healthcare ((SHL)), over the medium term, being ResMed ((RMD)), Ansell ((ANN)) and Cochlear ((COH)), and over the long term, being CSL ((CSL)).

RBS has rolled forward its valuation model inputs which has led to target price increases for most of the healthcare stocks the broker covers, albeit no recommendation changes have followed. The broker maintains a Hold rating on all of the above mentioned stocks except Ramsay, for which the rating is Sell.

Note that while a “Hold” rating and a suggestion profits should be taken might sound contradictory, this is not the case. “Hold” or “Neutral” ratings imply those stocks should be weighted as per their index weighting in an index portfolio, which implies that if investors have been holding greater than market weighting then it's time to cut back positions.

Healthcare sector outperformance, says UBS, has “confounded our sector valuations and fundamental stock targets”. However this is not the first time in history such a premium has been afforded the sector. The XHJ outperformed by 1.7% in the FY09 GFC period and by 7% in FY01, the tech wreck period. In each case healthcare gained from earlier lows as investors abandoned risk and scarcity of opportunity allowed healthcare to stand out. Healthcare's premium is now at a 5-year average, UBS notes, but history shows there may yet remain another 15% upside on the weight of inflows.

UBS has set a year-end target for the ASX 200 of 4500, or 4% higher than current. Fundamentally the healthcare sector is suggesting resilient earnings growth of above 10% ahead compared to the overall market's more “realistic” expectations of 4-5%. This suggests to UBS that investors could pay up to a 60% premium compared to the current premium of 51% on one-year forward estimates.

If the market decides the Aussie dollar can ease back, key names including ResMed, CSL, Ansell, Sonic and Ramsay stand to benefit, UBS notes. However, if history is on the healthcare sector's side, it also speaks of the potential for an abrupt reversal if “risk on” is back in vogue. To this end, UBS joins RBS in assuming the potential for stimulus from China, Europe and the US as well as RBA rate cuts.

Put it all together, and UBS has Buy ratings on Primary and ResMed along with Sirtex Medical ((SRX)), and Neutral ratings on CSL and Sonic. All of Ansell, Australian Pharmaceutical ((API)), Cochlear, Ramsay and Sigma attract Sell ratings.


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