>ALMIRALL (EUROPEAN STOCK)

Upside from pipeline and licensing

■ Undervalued - upside potential from pipeline and licensing
We believe Almirall is undervalued based on its existing business, with upside possible from potential accretive licensing activity and from upcoming pipeline data. Our €9.30 price objective (12% potential upside from current levels) assumes the stock trades on 11x our ‘10E EPS versus 10x currently. Conservatively, this values the company at a 10% discount to our DCF-derived
valuation of €10. Our valuation assumes no income from potentially accretive licensing deals or positive pipeline newsflow, which represent upside. We maintain our Buy rating.

■ Pipeline catalysts building
In the next 12 months, we expect to see further data for aclidinium, Almirall’s Phase III long-acting muscarinic antagonist (LAMA) for the treatment of chronic obstructive pulmonary disease (COPD, smokers’ cough), including head-to-head data versus currently marketed LAMA, Spiriva (Pfizer/Boehringer Ingelheim) and first data from the new Phase III programme. We also expect full Phase II data for LAS100977, a long-acting beta agonist for the treatment of asthma and COPD, and first Phase III data from a study of linaclotide in chronic constipation.

■ Licensing offers significant upside
Almirall continues to pursue licensing opportunities both within Spain and on a pan-European basis, offering potential further upside to our current valuation. Over the past year, we have raised our 2014E EPS forecast by 9% as a result of four licensing deals the company has signed and, while we have little visibility on timing or scope of any future deals, they are not included in our €9.30 valuation and, thus, represent only upside.

To see full report: ALMIRALL (MERRILL LYNCH)

>ROCHE (EUROPEAN STOCK)

■ Attractive valuation, EPS momentum and pipeline data
We maintain our Buy recommendation given the potential for positive earnings momentum and upcoming pipeline catalysts. We believe Roche’s valuation is undemanding given it offers one of the best growth rates in EU large cap pharma with an expected ’10-’13 EPS CAGR of 9%, yet trades on only a ’10E P/E of c12x. Our CHF190 PO is in-line with our DCF valuation and assumes shares trade on 13.8x.

■ Pipeline catalysts and further EPS momentum expected
Meaningful catalysts for Roche in our opinion include: 1) Further positive earnings momentum (from pharma margin/Tamiflu/ tax rate; 2) Phase III Avastin data in three new indications (metastatic prostate, ovarian and gastric cancer) expected could open up a combined market opportunity of CHF3-4bn; 3) The first Phase III data for once-weekly GLP-1 analogue taspoglutide in the treatment of diabetes is expected 2H09, with filing 2010; 4) Tamiflu guidance of CHF400m for 2010 could be raised given the ongoing swine flu pandemic.

■ Competitor newsflow also picking up
However, we highlight a pickup in competitor newsflow with: ) Erbitux pIII data from the COIN study in colon cancer (mCRC) in Sept 09; 2) First detailed Vectibix data in 1st line mCRC, also Sept 09, from the PRIME study; 3) Potential interim analysis for ASA404 (Novartis) from the ATTRACT Phase III study in 1st line NSCLC by end 09; 4) Potential further PIII data for Sutent (Pfizer) in 1st line mBC late 09, although initial data has been negative; 5) Phase III data for Nexavar (Bayer) in 1st line NSCLC from the NEXUS study in non-squamous patients 1H10; 6) Recentin (AZN) first Phase III data in 1st line mCRC 1H 2010, although there has previously been negative data in both lung cancer and 2nd line mCRC.

To see full report: ROCHE (MERRILL LYNCH)

>REVIVAL IN GLOBAL PRIMARY MARKET (NETWORTH CAPITAL)

A Sneak Peek
Market Return Vs Capital Raising

■ A near 61%+ rise in the world markets since March 9th has
provided corporate a much needed opportunity to raise capital
in form of debt and equity.

■ Since Jan 1st 2009 to date, companies across the world have
raised nearly USD 5,075bn out of which nearly USD 4718bn
(93%) has come in form of debt while USD 357bn (7%) has
come in form of Equity.

■ Out of the total of USD 357bn raised in equity, nearly USD
207bn of equity has been raised in the months of June, July and
August. Indicating corporate taking advantage of the rally to
swap high cost debt and re-capitalizing by raising new equity.


Large Equity in Offing

■ In the current environment this fresh capital is like a lifeline
for certain banking and real estate companies while other
took the advantage of the lower interest rates to swap high
cost debt.

■ In a way this rally has provided a great opportunity for
certain companies to emerge stronger.

■ A near 61% rise in the market past March, 2009 has
rewarded investors who participated in the rally. Improving
Economic numbers and corporate profits coupled with
rising liquidity augur well for Capital Markets. Hence, we
expect Primary & Secondary Markets to remain buoyant.

To see full report: REVIVAL IN MARKET

>MCLEOD RUSSEL (ICICI DIRECT)

McLeod Russel is one of the world’s largest bulk tea producing companies with annual production of 75 million kg per annum. The company exports one third of its production and has a market share of 10% in the North Indian tea market. Over the past four years the company has acquired four tea plantations (three in India and one in Vietnam). The company currently has over 59 tea gardens spanning across Assam, West Bengal and Vietnam.

Tight domestic demand-supply to boost tea prices
Tea prices have surged above Rs 130 per kg, almost 30% higher than last year on the back of shrinking inventories. The precipitous decline in auction tea prices during 2001-2005 had adversely affected tea plantation activity in India. Subsequently, several tea estates in India have been afflicted with low yields and require investments in replantation. This, in turn, has lead to sluggish growth in tea production during 2006-2009. Tea consumption in India, on the other hand, has grown at a consistent pace of 3%, resulting in shrinkage of tea inventories from 305.9 million kg in 2006 to 220.7 million kg in 2009. Simultaneously, a significant decline in tea production in major tea exporting countries like Kenya and Sri Lanka has further aggravated the situation. With black tea consumption growing steadily and adverse weather conditions taking a toll on tea production, primarily in major tea exporting countries we expect tea prices to remain firm,
going forward.

Best play in the industry
McLeod Russel is the largest bulk tea producer in the country, accounting for 8% of tea production in India. The company has witnessed consistent volume growth through various acquisitions of
tea estates over 2006-2009. Moreover, the company replants around 2% of its tea estates every year, in order to enhance the yields and increase production. The company’s realisations are almost 30% higher than the industry as most of its tea estates are located in Assam, which is known for its high quality tea. Rising tea prices have resulted in a higher EBITDA margin in 2009. With the company’s fixed cost structure, higher plucking productivity per plucker at Rs 25 per kg
(vis-à-vis industry average of Rs 21 per kg) and rising tea prices, we believe the EBITDA margin will further improve in 2010.

Growth through inorganic route
McLeod Russel is one of the largest bulk tea producers in India, accounting for 8% of the country’s total tea production. From 30 tea estates during 2004, the company currently operates over 59 tea estates, thereby doubling its production capacity from 40 million kg per annum in FY05 to 75 million
kg per annum in FY09. The company acquired Doom Dooma and Moran Tea Co in 2006 and 2007, respectively, with an annual production capacity of 6 million kg and 4 million kg, respectively. Additionally, in 2008-09, the company forayed into Vietnam and Africa through the acquisition of Phu Ben Tea Co (US$7 million) and Olyana Holdings LLC, US (US$2.75 million), respectively, through its UK-based subsidiary Borelli Tea Holdings Ltd. The Phu Ben Tea Co and Olyana Holdings have a production capacity of 4.5 million kg and 1.7 million kg of tea per annum, respectively. Given the company’s aggressive acquisition plans we expect this trend to continue,
thereby driving inorganic growth, going forward.

To see full report: MCLEOD RUSSEL