Bottom for Shire PLC?

[Guest Aparshah]

 

Hi Folks,

 

Just wondered what everyone thinks of Shire PLC chart from technical perspective

 

MACD and price divergence is obvious on daily chart 

Also price has bounced off major support almost three times

and it has broken bearish trendline 

 

Good to enter? (looking to hold for few months, SL below recent low) 

 

Share your thoughts!

 

Any opinions greatly appreciated. Thanks. 

 

[rimmy2000]

 I like this too, and will be back later with more info.

[rimmy2000]

 

Shire SHP

Market Cap £34.2bn

Listing FTSE 100 index

F/C PE 10.1

Debt/borrowing £15.3bn

 

I must admit, I too like the outlook for this stock, and your post caught my eye in part because I already hold it on my watchlist of stocks to buy. Main trouble for me, I am not sure if I can release funds soon enough to take a position in it when I’d like to, but I agree the prospects right now look appealing.

Of significant interest is a recently issued note by Broker, Liberium, which ascribed a Net Asset Value to SHP of £34.19p/share, equating to a gross NAV of £3.1bn.

 Given the current price of £37.63p, this indicates somewhat limited downside.

Year End is 31-Dec 17, and PTP forecast of £4,085m. Looking at a trailing 12 months, so far has reported £1,359m.

 

It is fair to say SHP has had a bad year, from a high of £50.57 in Mach of this year, it has since gone on to lose a lot of shareholder value, decreasing 25% from that point. As you say, the share looks to be gaining traction once again, and on a forecast PE of 10, is far more pessimistically rated than its three-year average PE of 18.1. This puts it more in the camp of an ex-growth company, when in fact based on consensus broker estimates, EPS growth is expected to come in at 131% on prior.

So there appears to be good scope for the stock to re-rate to the upside, and if Liberium have got their numbers anywhere near correct then the downside is covered and a 10% stop loss should see that risk covered. Currently 12 brokers cover this as a ‘BUY’, 5 as ‘HOLD’ and only 1 with ‘SELL’

The dividend is not great at 0.5% but then again this is positioned for future growth, not income, and for a short-medium term trade we look beyond dividends.

 

One more thing to add right now, and that is I think this is an opportune point to start a position with SHP, and although I may not buy in my real portfolios, I may simulate a trade next week and see how this performs, and track in this thread (if you don't mind). I think the added strength of the market over the next two weeks (and this being a FTSE 100 constituent) should all help to allow in  quickly bringing a stop up to break even. I'd initially set at £35.00, the low of prior week, and use the momentum of next week to rapidly bring it into a risk free position. As you’ve said, the technical are in favour and I won’t cover that any more in this post. Initial target £42, and then review.

 

This post being interest only, doesn’t constitute direct advice, but on this occasion I am happy to put my name against it and see how it performs. I will check overt the next couple of months.

[Guest 121]

It looks interesting on the 15 minute Chart. I didn't see much interesting on the higher timeframes but maybe you can spot something I couldn't. I don't ever really do shares !

[Guest 121]

Just wanted to alert you to my reply - chart above. Enjoy.

[Guest Aparshah]

    Excellent review! Many thanks for your evaluation and yes ofcourse post the trade here.

[rimmy2000]

Let’s say we open our position at 3792 this morning.

1,000 shares @ 3792p = £3,792 (ignore costs and dividends)

 

My stop will be manually set at £35.00

[rimmy2000]

The trade is moving in our favour.

Originally we bought 1,000 shares at 3792p = £3,792.

Our stop at  £35.00 gives a capital risk of £292

 

Day 4 and the shares are trading at £39.52p

Our gain to date is 4.6% in five trading days.

 

Stop is moved to £36.00, so risk is reduced now (£37.92-£36) = £192

 

Our present 4.6% gain equates (£39.52-£37.92) = £160 paper profit on the trade on day five.

 

We'll keep this running and first target is £42.00.

 

We have reduced our risk somewhat by timing the entry point. At £42 we are looking at a profit of £408, and our downside risk is now capped to £160 through advancing the stop. The risk vs reward is now quite favorable.

We will wait now and 1 of two things will happen:

1) we are stopped out

2) we reach our profit target.

 

ATB,

[Guest 121]

Really great pics. Also great with teaching others your approach including but not limited to risk control and money management.

[rimmy2000]

thanks, it will be good to see how the trade develops.

 

I am off for a break now, so will follow up on this in a week or so.

PS - meanwhile just come out of a very heaving MKS store - this company will form the basis of my Christmas research and another thread to be created accordingly - think this is a clear turnaround candidate.

[rimmy2000]

Finally, some pertinent news!

"

Shire PLC said Wednesday that it has secured Canadian regulatory approval for Xiidra, a twice-daily eye drop solution for the treatment of dry eye disease in adults.

"Xiidra is Shire's entry into the eye care market, and represents our commitment to ophthalmics," said Howard Mayer, Shire's chief medical officer for research and development,

Xiidra, which already is approved in the US, will be available for patients in Canada in early 2018.

Shares in the pharmaceutical company were trading 0.3% higher at 3,903.50 pence on Wednesday.

"

This product, as stated above, is currently available in the USA. But has only been for about 10 months, so we do not have much view of its impact to the top line.

However, we can go back to the 2017 trading statements and infer what impact the US revenues have had:

Shire Investor Relations

Q1 - no data-

Q2 $57m | 2% of sales

Q3 $77m |

 

Our key date is Weds 14th February 18 when we get the 2017 Full Year Results

 

We can *infer* the growth of the Xiidra product as 35% growth in the Q2-Q3 period, and again can estimate Q4 at $103.95m based on inference of this.

This gives us a (notional) FY of $238m sales in year 1 of this product. 

Add to that the same sales value (unless anyone has a better back-of-envelope method?) for Canada, and assume no growth in FY 18 and we get $476m of sales increase from this product alone for US and Canada combined.

 

Apply the group margin stated 77%, to give an Operating Profit boost of $366.44m > or £270m in GBP.

-------------------------

 

Meanwhile our trade is up 3.4% at £39.00. No other changes to the position. We await results..

 

[Guest Aparshah]

Yes sounds like a good addition to line of products but as you said the impact on actual revenue boost remains to be seen.

So far, we are doing ok on the trade, price holding around 39. Shall continue to hold long term. Thanks for your interest and regular updates. 

[rimmy2000]

Well, this has pulled back further, touching my (manually set) £35.00 price target. I am inclined to exit here, and take the minor loss - which has been reduced by moving up our stop from entry- and watch on the sidelines. I will consider over the weekend.

 

In hindsight a good trade could have been made selling for £40 late last year, but we had a plan, so we play by those rules. At worst case, our exit is for -3%.

Will ponder and update, there appears no news for the pull back, just drifting price. 

, keen on your view too..

[Guest TaxExile]

Looks like Shire could continue to fall in the short term. The forecast earnings estimates are still on a downtrend, The recent guidance from Shire on 8 January was for revenue of $17 -18bn by 2020 from a previous guidance of around $20bn. Finally the 20 DMA is getting close to crossing the 50 day DMA  which would confirm the short term down trend. Finally the PER of over 19 is not particularly compelling. 

[phillo]

Buyers have shown up at this level before, just a question as to whether they do again. The 50% level is below and there is outstanding gap.

[rimmy2000]

hey , I do agree, I think this looks set to drift, perhaps until the next announcement declares if the recovery is on track.

 

Looking at my earlier post, I had set the theoretical stop to £36, and this gives an exit loss of £-192 on this position, from memory. For me it is back on the watchlist to see how it develops.

In terms of your comment: 'earnings estimates are still on a downtrend' have you got a source for this. Looking at my data, Earnings estimates are increased. See below.

And looking historically, normalised earnings we get this:

So whilst I agree the last few years have seen a deterioration of EPS, I would say that forward-looking targets seem to be increasing. Next update should be 16th Feb, so we can look out for that.

 

Its been a fun and hopefully engaging exercise to log the trade. We can always update on next news.

 

Cheers

[Guest TaxExile]

I was just looking on 4-Traders.com which is handy to get a recent price. They show an eps revisions in chart from for the last year, probably not the most accurate but it gives you an idea in seconds. Beats trying to navigate to the right pages on Digitallook especially since they ruined upgraded their website.  here is the forecast eps graph from 4-Traders.com