Pfizer approached AstraZeneca last year to discuss a possible takeover and is believed to be looking again at the company, with Astra hiring investment banks to advise it on any new approach.
Shares rocketed 8 per cent in early trading today, giving a boost to 44 UK equity income funds including Invesco Perpetual High Income, which is 9.75 per cent invested in the company.
The same manager’s Invesco Perpetual Income has 8.1 per cent in the company while Fidelity Moneybuilder Dividend and Schroder Income are among the other portfolios with the highest weightings.
Source: FE Analytics
AstraZeneca has been flagged up as an undervalued recovery story by managers for some time and is held by a total of 172 IMA funds.
FE Alpha Manager Neil Woodford has long been a supporter of the stock having bought heavily into the sector a few years ago when it was undervalued.
Woodford is currently between jobs, with his new fund yet to launch and the Invesco Perpetual funds handed over to Barnett.
Both AstraZeneca and GlaxoSmithKline suffered in recent years as the patents expired on many of their top-selling drugs. AstraZeneca was seen as being further behind in developing new drugs, leading its shares to trade on a lower earnings multiple.
Charles Luke, manager of Aberdeen’s Murray Income Trust, told FE Trustnet back in February that the earnings potential of its new drugs was underappreciated by the market.
Threadneedle’s Richard Colwell, manager of the Threadneedle UK Equity Income fund also identified the stock as one of the most attractively-valued large caps.
The Threadneedle UK Equity Income fund has 6.4 per cent in the stock and the Threadneedle UK Equity Alpha Income 5.5 per cent. Threadneedle Monthly Extra Income has 5 per cent in the company.
Many of the funds buying AstraZeneca have also built up significant positions in GlaxoSmithKline as well.
Recent share price returns have been more muted as the company’s shares grew faster and farther through 2012 and 2013.
Performance of stocks versus index over 3yrs
Source: FE Analytics
Glaxo shares have also received a boost this morning with shares up over 6 per cent on news that the company has sold its oncology division to Novartis for $16bn and acquire the Swiss company’s vaccines unit for $5.25bn.
As a part of the deal the two companies will work together on consumer business, with Glaxo taking a 63.5 per cent stake in a joint venture with revenues worth £6.5bn a year.
Invesco Perpetual High Income has 9.29 per cent in the stock and Invesco Perpetual Income 8.67 per cent.
Evenlode Income and Alastair Mundy’s Investec UK Special Situations also have high weightings to the company.
Source: FE Analytics
The positive news for the stocks comes at a time when the healthcare sector has been suffering. A sell-off in the biotech sector has had a knock-on effect, with both Glaxo and Astra shares following the Nasdaq Biotechnology index down over recent weeks.
Performance of stocks versus indices in 2014
Source: FE Analytics
Data from FE Analytics shows that 149 funds have both stocks in their top 10, with the Invesco funds the most exposed.
Fidelity Moneybuilder Dividend has a combined 15.6 per cent in the two stocks and Scottish Widows Environmental Investor 10.6 per cent.
Schroder UK Alpha Plus and Psigma Income both have around 9 per cent in total exposure to the pair.
James Griffin, manager of the Fidelity Moneybuilder Growth fund, says that the rumoured deal would be good for both parties and illustrates the value potential in the pharmaceutical industry.
“The news that US pharma giant Pfizer is considering a move for AstraZeneca highlights the potential for value realisation in the pharmaceutical sector, and UK large caps in general,” he said.
“There are many US companies, such as Pfizer, with cash ‘trapped’ abroad that they cannot repatriate for tax reasons. This adds to the case for corporate activity, but in particular in the healthcare sector, where there are businesses such as AstraZeneca and Shire which have undervalued pipelines that could be of huge strategic value to a competitor, even before cost savings.”
“Any such deal between Pfizer and Astra, like the transaction between Glaxo and Novartis, would demonstrate how corporate buyers are willing to take a different perspective on valuation, taking a more fundamental and long term view than the market has recently.