July 23, 2014

Astra Zeneca Pfizer acquisition talk sends share price soaring

Pfizer expressing an interest in acquiring Astra Zeneca sent Astra Zeneca’s share price soaring by over 14pc on Monday. Commenting on the news,  Michael Clark, Portfolio Manager of Fidelity MoneyBuilder Dividend and Fidelity Enhanced Income funds expressed a belief that this highlights why it is important to look beyond immediate negative sentiment:

“I have held Astra Zeneca in the income funds for a long time. When I bought the stock in 2009, market sentiment was very negative around the company, and the valuation was consequently very low. Patent expiries were expected to put pressure on sales and profits, and there was little in the pipeline at the time.

“For an income fund, however, the shares were very attractive: low PE, high dividend yield backed by strong cash flow, little debt. On top of that, there was the possibility that market sentiment, and therefore valuations, could change for the better. Once Leif Johansson became chairman, changes were made to the way the company was run and there was a drive to get it back to growth. In addition, Pascal Soriot came on board as CEO and good news came from the drug development pipeline as the company unveiled an interesting early stage product in the field of cancer treatment.

“The shares began to rise from October last year, and now Pfizer has expressed an interest in buying the company. The shares have risen to £46.70. Our average purchase price was £29. In my view, the developments at Astra Zeneca over the past few years show how important it is to invest when valuations are attractive even if general market sentiment is negative  at the time.”

 

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