Morning Note: Market news and updates from AstraZeneca and Halma.

Market News

Janet Yellen it’s “unlikely” that market interest rates will return to pre-Covid levels. And she told Fox Business that a moderation in the rise of US housing costs will help deliver lower inflation in 2024. Harvard’s Kenneth Rogoff said both Trump and Joe Biden espouse policies that risk sending US debt levels into dangerous territory. The 10-year Treasury currently yields 4.20%, while equity markets drifted lower last night: S&P 500 (-0.2%), Nasdaq (-0.5%).

This morning in Asia, markets were mixed: Nikkei 225 (+0.3); Hang Seng (-0.9%); Shanghai Composite (-0.2%). The Bank of Japan is expected to go slow in hiking rates after ending negative rates, says ex-Central Bank Executive says.

The FTSE 100 is currently little changed at 7,771. Companies trading ex-dividend today include NatWest Group (4.55%), Anglo American (1.65%), Haleon (1.27%), Entain (1.15%), and Tritax Big Box REIT (1.37%).

The oil price hit a 5-week high – Brent is $84.20 a barrel – after US crude stockpiles shrank and Ukraine’s drone attacks on a Russian refinery. Copper futures surged to over $4 per pound, reaching the highest in more than seven months after top Chinese copper smelters agreed to reduce production at unprofitable facilities due to raw material shortages. Gold at $2,167 an ounce. Bloomberg believes a surge of buying from China is probably behind the recent rally but conventional factors that typically propel it are starting to fall in line.

The UK housing market picked up in February, with an increase in both new buyer inquiries and properties for sale after prices stabilised, RICS said. Sterling trades at $1.2805 and €1.1710.

Source: Bloomberg

Company News

AstraZeneca has this morning announced the $1.05bn acquisition of Amolyt Pharma, expanding its late-stage rare disease pipeline. In response, the shares are little changed in early trading.

AstraZeneca (AZ) is a global, science-led biopharmaceutical company. The main growth driver has been the group’s key oncology franchises (including Tagrisso, Lynparza, Enhertu, Imfinzi, and Calquence), which have been supplemented by the other ‘growth platforms’ of Emerging Markets, respiratory, and cardiovascular, renal, & metabolic diseases (CVRM). The $39bn purchase of Alexion in 2021 combined AZ’s capabilities in precision medicine and its global distribution network with Alexion’s expertise in rare diseases. Many of the group’s key products are at early stages in their life cycle – so that it is relatively low risk in terms of loss of patent exclusivity.

AZ currently invests more than 20% of sales in R&D and uses partnerships to gain access to innovative technology. The group has an attractive pipeline of potential new products, the success or failure of which will be a key determinant of future profitability and the share price. The group is aiming to deliver at least fifteen new medicines before the end of the decade. It hopes this will generate “industry leading growth beyond 2025”, with industry being 3%-4% growth, and a mid-to-high 30s core operating margin. Growth is expected to be driven by geographic expansion and follow-on indications from the existing portfolio, as well as new products currently in late-stage development.

In addition, the group has traditionally supplemented its growth through M&A, with its strong balance sheet providing financial flexibility.

This morning, AZ has announced the acquisition of Amolyt Pharma, a clinical-stage biotechnology company focused on developing novel treatments for rare endocrine diseases. The deal will bolster the group’s rare disease late-stage pipeline and expand on its bone metabolism franchise with the notable addition of eneboparatide (AZP-3601), a Phase III investigational therapeutic peptide with a novel mechanism of action designed to meet key therapeutic goals for hypoparathyroidism. 

Hypoparathyroidism, a deficiency in parathyroid hormone (PTH) production, is one of the largest known rare diseases, affecting an estimated 115,000 people in the US and 107,000 people in the EU, approximately 80% of whom are women.

Under the terms of the agreement, AZ will acquire all of Amolyt Pharma’s outstanding shares for a total consideration of up to $1.05bn, on a cash and debt free basis. This includes $800m upfront at deal closing (end Q3 2024), plus the right for Amolyt Pharma’s shareholders to receive an additional contingent payment of $250m payable upon achievement of a specified regulatory milestone.

We believe the outlook for the pharmaceutical sector remains mixed. Although the business provides some protection against macroeconomic uncertainty, concerns over drug pricing are likely to remain a headwind especially at a time when governments are looking for ways to reduce debt levels. However, with a pipeline of innovative and rare products to address unmet patient needs, that can justify higher pricing, we believe AZ is relatively well-placed in this environment with above average revenue and earnings prospects versus the large cap pharma peer group. This has been reflected in the strong long-term performance of the shares.

Source: Bloomberg

Halma has today released a trading update, ahead of its financial year-end on 31 March 2024. Performance remains positive and guidance for the full year has been reiterated. In response, the shares are little changed in early trading.

Halma is a global group of life-saving technology companies, with a focus on safety, health, and the environment. The group’s technology is used to save lives, prevent injuries, and protect people and assets across a broad range of sectors including commercial and public buildings, utilities, healthcare/medical, science/environment, process industries, and energy/resources. The main growth drivers include increasing health and safety regulation, demand for healthcare from an ageing population, and demand for life-critical resources. Strong market positions deliver upgrade and replacement sales opportunities as customers seek to maintain regulatory compliance and conform with best practice. As a result, customer spending is often non-discretionary and drives sustained demand throughout the economic cycle.

The group has made further progress in the second half of this financial year to date, delivering strong growth in varied market conditions, while continuing to make substantial strategic investments to enhance future growth opportunities.

The company has delivered strong constant currency revenue growth in the year to date, comprising good momentum on an organic constant currency basis and a continued healthy contribution from recent acquisitions (net of disposals). Note that in the group’s first half (to 30 September 2023), the organic increase at constant currency was 5.4%, with price increases averaging around 2%.

Organic growth has been supported by order intake which remains ahead of the comparable period last year and is close to revenue in the year to date.

By sector, Environmental & Analysis has delivered strong revenue growth in the year to date, driven primarily by exceptionally strong growth in the Photonics segment within the Optical Analysis subsector. There was good revenue growth in the Safety sector, reflecting strength in the Fire Safety and Industrial Safety subsectors. Healthcare sector performance reflected weak second half trends in the Life Sciences and Healthcare Assessment & Analytics subsectors, partly offset by strong growth in Therapeutic Solutions.

By region, the US and Mainland Europe, the group's two largest regions which together account for nearly two-thirds of revenue, have grown strongly in the year to date. Growth in the UK has been modest, while Asia Pacific's revenue, which was lower in the first half, saw some improvement in the second half. Revenue growth in the remaining smaller regions has been good in aggregate.

Cash conversion for the full year is expected to be ahead of the group’s target of 90%. There is no comment on the balance sheet – as a reminder, at the half-year stage financial gearing was 1.4x net debt to EBITDA, well within the target of ‘up to 2x’. This enables continued investment, both organically and by acquisition, to support continued growth. The group has made eight acquisitions in the year to date, for a maximum total consideration of £299m, and has a promising pipeline.

The current expectation is for full year adjusted PBT to be in line with analyst consensus expectations, currently £388.5m, with a range of £376.0m to £393.5m.

Source: Bloomberg