Investment Column: Dental sale makes sense for AstraZeneca

Sepura; Superglass
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The Independent Online

Our view: Hold

Share price: 3,046p (+21p)

AstraZeneca announced the widely expected sale of its Astra Tech dental implants and medical devices unit yesterday. US group Dentsply triumphed over rival bidders from the medical and private equity world to acquire the business for $1.8bn.

The reasoning behind the disposal, which was flagged up last year when the group said it was considering options, is pretty straightforward. As the analysts as Seymour Pierce noted, Astra Tech's focus was "distinct from the remainder of the business".

Although it should be remembered that there were reports that AstraZeneca was looking for $2bn or so, the sales multiples are good. Based on last year's performance, the unit is going at 3.4 times enterprise value to sales, and just over 17 times enterprise value to earning before interest, tax, depreciation and amortisation, according to JP Morgan Cazenove.

In other words, this can hardly be characterised as a bad deal. But is it good enough? In the past, we've held back from buying as AstraZeneca appeared to offer little in the way of exciting growth prospects. It was bankable, yes, but it also had risks in the shape of patent expiries in coming years. And though the wider industry faces similar battles, we did not think that Astra offered a particularly compelling proposition.

This deal – though good for investors, who should see nice returns – does not change that view. Astra boasts a solid proposition that is well worth holding on to – but still we aren't excited enough to add to our portfolio.

Sepura

Our view: Hold

Share price: 53p (-5p)

Sepura makes radios for the so-called "first response" services such as the police, medics and firemen. In other words, it provides a crucial service for what are pretty crucial services. Yet, yesterday, the Cambridge-based firm revealed it had been a tough year, with revenues down 10 per cent to £70.4m.

This came as some of its clients have delayed shipments of its radios, especially in its core German market, as its users waited for the results of March elections before committing more funds. It also expects demand in the UK to fall as an overhaul of police equipment nears an end.

On the upside, the chief executive, Gordon Watling, said Sepura had grown market share in challenging markets. Sepura's radio work on the Terrestrial Trunked Radio standard is being rolled out in other jurisdictions, which should allow room for growth. It is also expanding into the commercial sector.

Management remains confident about long-term prospects, and it is investing for growth, which is good – but it's too early to buy.

Superglass

Our view: Speculative buy

Share price: 14.5p (-4.25p)

Is yesterday's profit warning shattering for Superglass? On the face of it, things do not look good. Sales via the Government-sponsored Carbon Emissions Reduction Target (CERT) scheme – which demands that utilities subsidise insulation using materials that Superglass makes – have been poor. Such schemes tend to pick up in their final year, and in April the company said this was indeed happening after a very cautious update in March. But since then things have moved into reverse.

On top, there's the impact of higher energy costs. And though efforts have been made to garner new revenue streams away from CERT, they won't be enough. So, while turnover should be up for the current financial year, profits, as a result, will be only modest.

Still, there are grounds for seeing Superglass as a recovery play, not least because of the political drive to cut emissions. We feel its market should eventually pick up. Thus, while most should avoid, those with an appetite for risk should view this as a (highly) speculative buy.

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