JPMorgan European Smaller Companies Trust — Building on long-term positive track record

JPMorgan European Discovery Trust (LSE: JEDT)

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JPMorgan European Smaller Companies Trust — Building on long-term positive track record

JPMorgan European Smaller Companies Trust (JESC) aims to generate long-term capital growth from a portfolio of high-quality, reasonably valued, small-cap European equities. While the European stock market, in keeping with global markets, has been more volatile year to date compared with the abnormally low levels of volatility in 2017, the managers believe that there is potential for further upside. They cite an improving European and global economy, low inflation and a benign interest rate environment, which is supportive for corporate earnings growth. JESC has a very strong investment track record, outperforming the EMIX Smaller Europe ex-UK index over the last one, three, five and 10 years. The trust currently offers a 1.7% dividend yield.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

JPMorgan European Smaller Cos

Building on long-term positive track record

Investment trusts

16 July 2018

Price

401.5p

Market cap

£642m

AUM

£809m

NAV*

445.8p

Discount to NAV

9.9%

NAV**

451.0p

Discount to NAV

11.0%

*Excluding income. **Including income. As at 12 July 2018.

Yield

1.7%

Ordinary shares in issue

160.0m

Code

JESC

Primary exchange

LSE

AIC sector

European Smaller Companies

Benchmark

EMIX Smaller Europe ex-UK

Share price/discount performance

Three-year performance vs index

52-week high/low

446.0p

367.0p

474.8p

414.2p

**Including income.

Gearing

Net cash*

1.4%

*As at 9 July 2018.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Sarah Godfrey

+44 (0)20 3681 2519

JPMorgan European Smaller Cos is a research client of Edison Investment Research Limited

JPMorgan European Smaller Companies Trust (JESC) aims to generate long-term capital growth from a portfolio of high-quality, reasonably valued, small-cap European equities. While the European stock market, in keeping with global markets, has been more volatile year to date compared with the abnormally low levels of volatility in 2017, the managers believe that there is potential for further upside. They cite an improving European and global economy, low inflation and a benign interest rate environment, which is supportive for corporate earnings growth. JESC has a very strong investment track record, outperforming the EMIX Smaller Europe ex-UK index over the last one, three, five and 10 years. The trust currently offers a 1.7% dividend yield.

12 months ending

Share price
(%)

NAV
(%)

EMIX Smaller
Europe ex-UK (%)

FTSE World
Europe ex-UK (%)

FTSE All-Share
(%)

30/06/14

39.1

28.3

26.8

16.4

13.1

30/06/15

7.8

5.2

(0.3)

1.1

2.6

30/06/16

10.5

23.9

14.2

6.0

2.2

30/06/17

44.0

28.8

35.8

29.0

18.1

30/06/18

10.7

12.7

6.9

2.5

9.0

Source: Thomson Datastream. Note: All % on a total return basis in pounds sterling.

Investment strategy: Bottom-up stock selection

JESC’s managers screen the c 1,500-strong universe of European small-cap equities seeking high-quality companies, with good business momentum, that are trading on reasonable valuations. Potential investee companies are subject to rigorous fundamental analysis and meeting company managements is a key part of the investment process. One of the key themes in the portfolio is a focus on companies – across a variety of sectors – that are benefiting from technological change. The managers are unconstrained by the benchmark’s geographic and sector allocations. Gearing of up to 20% is permitted; at 9 July 2018, the trust was running a net cash position of 1.4%.

Market outlook: Greater focus on valuation warranted

European equities, along with global markets, have performed well since early 2016, with small-cap stocks leading the charge. While corporate earnings have been boosted by an improving global economy, shares have also enjoyed a positive re-rating, meaning that equities now look less attractively valued. Small-cap European companies are more expensive on a forward P/E multiple basis than both world and UK equities, suggesting investors may benefit from being more valuation aware when investing in this asset class.

Valuation: Scope for discount to narrow

JESC is currently trading at an 11.0% discount to cum-income NAV. This compares with the 8.8% to 14.1% range of averages over the last one, three, five and 10 years. Given the trust’s positive long-term investment track record, there is scope for the discount to narrow over time. The board’s policy is to pay out the majority of income received each year; JESC’s current dividend yield is 1.7%.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

JPMorgan European Smaller Companies Trust (JESC) aims to achieve capital growth from a diversified portfolio of shares in smaller European companies (excluding the UK). Liquidity and borrowings are actively managed (investments 80-120% of net assets) with a view to enhancing returns to shareholders. As JESC’s investment policy emphasises capital growth, rather than income, the dividend is expected to vary from year to year. JESC is benchmarked against the EMIX (formerly Euromoney) Smaller Europe ex-UK total return index in £ terms.

6 June 2018: Final results to 31 March 2018. NAV TR +14.4% versus benchmark TR +10.0%. Share price TR +21.6%. Declaration of 5.5p final dividend.

1 March 2018: Announcement that former manager Jim Campbell has returned from personal leave. He will be pursuing other opportunities within J.P. Morgan Asset Management.

12 December 2017: Six-month results to 30 September 2017. NAV TR +14.5% versus benchmark TR +12.2%. Share price TR +19.0%. Declaration of 1.2p interim dividend.

Forthcoming

Capital structure

Fund details

AGM

July 2019

Ongoing charges

1.04%

Group

J.P. Morgan Asset Management (UK)

Interim results

December 2018

Net cash

1.4%

Manager

Francesco Conte, Edward Greaves

Year end

31 March

Annual mgmt fee

Tiered (see page 7)

Address

60 Victoria Embankment,
London EC4Y 0JP

Dividend paid

January, July

Performance fee

None

Launch date

April 1990

Trust life

Indefinite

Phone

+44 (0)800 731 1111

Continuation vote

None

Loan facilities

€105m

Website

www.jpmeuropeansmallercompanies.co.uk

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

Between zero and two dividends annually. Interims, when paid, are in January. Finals, when paid, are in July. Numbers below have been adjusted for stock split.

Renewed annually, the trust has authority to purchase up to 14.99% and allot up to 5% of issued share capital.

Shareholder base (as at 31 May 2018)

Portfolio exposure by sector, excluding cash (as at 30 June 2018)

Top 10 holdings (as at 30 June 2018)

Portfolio weight %

Company

Country

Sector

30 June 2018

30 June 2017*

Alten

France

Information technology

2.4

2.2

Rubis

France

Utilities

2.3

N/A

Sopra Steria

France

Information technology

2.3

2.4

Royal Unibrew

Denmark

Consumer staples

2.2

2.4

TKH

Netherlands

Industrials

2.2

2.6

Amplifon

Italy

Healthcare

2.1

N/A

IMCD

Netherlands

Industrials

2.1

N/A

Galenica

Switzerland

Healthcare

2.1

N/A

Skandiabanken

Sweden

Financials

2.0

N/A

SimCorp

Denmark

Information technology

2.0

N/A

Top 10 (% of holdings)

21.7

23.3

Source: JPMorgan European Smaller Companies Trust, Edison Investment Research, Morningstar, Bloomberg. Note: *N/A where not in end-June 2017 top 10.

Market outlook: Time to be more selective

Exhibit 2 (left-hand side) shows the performance of indices, in sterling terms, over the last five years. In aggregate, shares have performed particularly strongly since early 2016, due to robust corporate earnings growth and a positive revaluation of equities. Small-cap European stocks have significantly outperformed both global and UK equities over this period. On a forward P/E multiple basis, small-cap European stocks are more expensive than global equities, although they offer a modestly higher dividend yield. Compared to UK companies, smaller European firms are less attractively valued based on earnings multiples, and offer a significantly lower yield. While there are plenty of investment opportunities available in individual smaller European stocks, investors may wish to consider a fund that invests in quality, undervalued companies, and which has a solid long-term performance track record.

Exhibit 2: Market performance and valuation

Performance of indices in £ (last five years)

Key valuation metrics for European small caps versus other indices

Source: Thomson Datastream, Bloomberg, Edison Investment Research. Note: Valuation data as at 13 July 2018.

Fund profile: Diversified European small-cap exposure

JESC was launched in April 1990. It aims to generate long-term capital growth from a diversified portfolio of European ex-UK small-cap equities. The trust is managed by Francesco Conte (since 1998) and Edward Greaves (since 2016), who are able to draw on the broad resources (c 40 professionals) of J.P. Morgan Asset Management’s European equity team. Former manager (since 1995) Jim Campbell has returned from personal leave and assumed another role within J.P. Morgan Asset Management. Jack Featherby was hired as an analyst in January 2018 to work alongside Conte and Greaves. The trust is benchmarked against the EMIX Smaller Europe ex-UK Index, which at end-FY18 contained c 1,000 companies with market caps up to £5.3bn, spread across 14 countries. At the time of investment, a maximum 5% of the portfolio is permitted in a single stock and no more than 15% may be invested outside of the benchmark. Currency exposure is not hedged. JESC may gear up to 20% or run up to a 20% net cash position; as at 9 July 2018, the trust had a net cash position of 1.4%. The trust has a strong performance track record – over the last 20 years to end-FY18, JESC’s NAV has achieved annualised total returns (net of fees) of 13.4%, 4.4pp per annum ahead of the benchmark’s annual total return.

The fund managers: Francesco Conte, Edward Greaves

The managers’ view: Retaining a positive outlook

We met with the managers in May 2018, and they explained that earlier in the year investors were bullish on the outlook for European equities. Conte and Greaves were less optimistic given the unusually low levels of stock market volatility in 2017; during the year, the maximum stock market pullback was just 4%. Investor sentiment changed in February 2018, driven by a number of factors: a higher than expected inflation number out of the US, which led to concerns about central bank tightening; fears of an economic slowdown; and concerns about global trade, following comments from President Trump. These events led to a stock market drawdown in March but, due to its focus on quality companies, JESC outperformed its benchmark during this period. The managers believe that the market pullback was a mid-cycle correction and has not signalled the end of the bull run. Overall, they remain fundamentally positive.

While the momentum in global purchasing managers’ indices (PMIs) has slowed, they remain above 50, which indicates economic expansion. The managers note that more than 50% of European company revenues are generated outside the region, and that economies in the European area also continue to improve. They believe that normalising inflation is positive, and there are factors that will ensure inflation will not get out of hand, which could otherwise lead to excessive monetary tightening and a subsequent recession. For example, the internet brings pricing transparency, and advances in automation are helping to curtail cost inflation.

The managers say that European equity valuations are not excessive, running broadly in line with long-term averages. While the European stock market has rallied strongly since early 2016 (along with global equities), it is supported by robust corporate earnings. Consensus estimates are for c 10% growth in both 2018 and 2019, following on from above average growth of c 20% in 2017.

JESC’s managers continue to focus on technological change across a broad range of sectors, aiming to identify the companies that will benefit, and avoid those that will be negatively affected. In an environment of more normal stock market volatility, they note there are outsized share price moves for companies that are beating or missing consensus earnings estimates, movements that can be exacerbated by algorithmic trading. The managers are keen to exploit what they view as pricing anomalies, taking advantage of individual company share price weakness as a result of transitory factors such as currency moves. They are able to employ gearing to increase exposure to high-conviction positions, rather than having to raise cash by selling an existing position. Earlier in 2018, the managers increased their position in Italian company Datalogic, a global leader in the automatic data capture and process automation markets. They believed the market overreacted to a temporary slowdown in the company’s growth; they consider the firm is well-positioned to benefit from long-term growth in its core products, which include bar code readers and sensors.

Asset allocation

Investment process: Screening and fundamental analysis

The managers aim to generate long-term capital growth from a diversified portfolio (50-75 holdings) of small-cap, European ex-UK equities. They use a proprietary multi-factor model to screen the potential universe, which is made up of c 1,500 small-cap European stocks. Companies passing the screen undergo thorough fundamental analysis. The managers seek high-quality companies, with good business momentum, that are trading on reasonable valuations.

Holdings tend to fall into three ‘buckets’: companies that can grow organically regardless of the economic backdrop; those offering a niche product or service; or turnaround situations. The exposure to each ‘bucket’ may vary depending on general market conditions. Position size is determined by the managers’ level of conviction and a company’s share liquidity. New positions are typically c 1% of the portfolio and are generally trimmed when they reach c 3%. Reasons for selling a holding are: due to a fundamental deterioration in business conditions; if the company has grown too large; on valuation grounds; or if there is a better investment opportunity available. Portfolio turnover is currently running at c 70%, which is broadly in line with historical averages.

Current portfolio positioning

JESC’s geographic exposure is shown in Exhibit 3. The trust’s largest overweight is now the Netherlands (+11.7pp), and it continues to have no exposure to Spain (-7.4pp) as the managers are unable to find attractive companies trading on reasonable valuations.

Exhibit 3: Portfolio geographic exposure vs benchmark (% unless stated)

Portfolio
end-June 2018

Index
weight

Active weight
vs index (pp)

Trust weight/
index weight (x)

Netherlands

17.7

6.0

11.7

3.0

France

15.9

12.8

3.1

1.2

Switzerland

13.7

10.6

3.1

1.3

Italy

10.9

10.3

0.6

1.1

Sweden

10.7

11.9

(1.2)

0.9

Germany

8.2

13.8

(5.6)

0.6

Norway

7.4

5.4

2.0

1.4

Denmark

6.1

3.5

2.6

1.7

Belgium

3.6

5.4

(1.8)

0.7

Finland

3.1

4.2

(1.1)

0.7

Austria

2.7

4.3

(1.6)

0.6

Spain

0.0

7.4

(7.4)

0.0

Portugal

0.0

1.5

(1.5)

0.0

Other

0.0

2.9

(2.9)

0.0

100.0

100.0

Source: JPMorgan European Smaller Companies Trust, Edison Investment Research. Note: Excludes cash. Companies categorised by country of listing.

On a sector basis (Exhibit 4), JESC’s largest increases in exposure over the past 12 months are healthcare (+7.0pp) and energy (+6.1pp), while the largest decrease is consumer discretionary
(-13.1pp). The trust now has double the index weighting in technology, and has no exposure to the real estate and telecom sectors, which together make up more than 10% of the index.

Exhibit 4: Portfolio sector exposure vs benchmark (% unless stated)

Portfolio end-
June 2018

Portfolio end-
June 2017

Change
(pp)

Index
weight

Active weight
vs index (pp)

Trust weight/
index weight (x)

Industrials

28.2

34.5

(6.3)

23.4

4.8

1.2

Information technology

18.7

15.2

3.5

8.8

9.9

2.1

Consumer discretionary

13.8

26.9

(13.1)

12.3

1.5

1.1

Consumer staples

9.2

12.2

(3.0)

6.6

2.6

1.4

Healthcare

9.0

2.0

7.0

8.8

0.2

1.0

Financials

8.9

6.4

2.5

14.8

(5.9)

0.6

Energy

6.4

0.3

6.1

3.5

2.9

1.8

Materials

3.3

2.5

0.7

7.5

(4.2)

0.4

Utilities

2.6

0.0

2.6

3.5

(0.9)

0.7

Real estate

0.0

0.0

0.0

8.5

(8.5)

0.0

Telecommunications

0.0

0.0

0.0

2.3

(2.3)

0.0

100.0

100.0

100.0

Source: JPMorgan European Smaller Companies Trust, Edison Investment Research. Note: Excludes cash.

The managers highlight one of JESC’s holdings – Tomra Systems, which is a Norwegian company manufacturing ‘reverse vending machines’ for recycling solutions. It has a 70-80% global share and the managers consider that the company has very favourable attributes: structural growth, technology leadership (its machines are very complex), and a highly conservative management team. They were able to initiate a position at an attractive valuation. Relatively recent new positions in the portfolio include Arcadis (Netherlands), an infrastructure consultant, which has undergone management changes and strengthened its formerly weak balance sheet; Atea (Norway), which offers value-added services using sensor technology to optimise a customer’s logistical network; Royal Vopak (Netherlands), the world’s leading independent tank storage company, which is expected to experience an earnings inflexion following a period of high capex; and Rubis (France), which is somewhat like a private equity company, in that it buys non-core, unconnected assets from energy companies and improves their efficiency.

Performance: Above the benchmark

In FY18 (ending 31 March), JESC’s NAV and share price total returns of +14.4% and +21.6% were significantly ahead of the benchmark’s +10.0% total return. The outperformance was primarily due to stock selection rather than asset allocation. The board is particularly pleased with the trust’s results, acknowledging that it was a difficult period for individual stock picking, and there were wide divergences between individual sector performances.

Over the last 12 months to end-June, JESC’s NAV and share price total returns of +12.7% and +10.7% respectively are again meaningfully ahead of the benchmark’s +6.9% total return (Exhibit 5). Significant contributors to performance include Interpump Group (high-pressure piston pumps); Jungheinrich (forklift trucks and warehouse systems); Stabilus (gas springs and dampers); and Trigano (camper vans and camping equipment).

Exhibit 5: Investment trust performance to 30 June 2018

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

JESC’s relative returns are shown in Exhibit 6. It has outperformed the benchmark over one, three, five and 10 years in both NAV and share price terms. The trust has also performed considerably better than both large-cap European and UK equities over these periods.

Exhibit 6: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to EMIX Smaller Europe ex-UK

1.1

(2.4)

(2.5)

3.6

6.3

26.3

27.1

NAV relative to EMIX Smaller Europe ex-UK

0.4

(0.5)

1.5

5.5

8.7

16.0

16.3

Price relative to FTSE World Europe ex-UK

0.5

(1.8)

(0.4)

8.0

25.5

60.1

71.1

NAV relative to FTSE World Europe ex-UK

(0.2)

0.2

3.6

9.9

28.3

47.1

56.5

Price relative to FTSE All-Share

1.0

(7.0)

(3.5)

1.6

33.8

73.0

64.0

NAV relative to FTSE All-Share

0.3

(5.1)

0.4

3.4

36.7

59.0

50.1

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-June 2018. Geometric calculation.

Exhibit 7: NAV total return performance relative to benchmark over three years

Source: Thomson Datastream, Edison Investment Research

Discount: In a narrowing trend since late 2016

Over the last three years, JESC’s widest discount was 18.4%, which occurred in mid-November 2016. Since then the discount has narrowed meaningfully. The current 11.0% share price discount to cum-income NAV compares with the averages for the last one, three, five and 10 years of 8.8%, 10.8%, 11.3% and 14.1% respectively.

Exhibit 8: Share price discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

JESC is a conventional investment trust with one class of share; there are currently 160.0m ordinary shares in issue. The trust has a €105m lending facility with Scotiabank, at a cost of Libor +72.5bp, which expires on 17 January 2020. JESC is permitted to run between a 20% net cash and a 20% geared position; at 9 July 2018, the trust had a net cash position of 1.4%. During FY18, gearing varied between 3.6% net cash and 9.4% geared.

In recent years, JESC’s management fee has been coming down. Prior to 1 April 2015 it was 1.3% of net assets, which was then reduced to 1.0%. On 23 February 2017 it was announced that the fee structure would be reduced further. Effective from 1 April 2017, the management fee is 1.00% of net assets up to £400m and 0.85% of net assets above £400m. In FY18, ongoing charges were 1.04%, which was 9bp lower than in FY17.

Dividend policy and record

While JESC aims to generate long-term capital growth, the board’s distribution policy is to pay out the majority of annual revenue, meaning that total annual dividends will vary from year to year. Interims, when paid, are in January, and finals, when paid, are in July. In FY18, the total distribution of 6.7p was significantly higher than the annual dividends paid in recent years; +43% versus FY17 and +109% versus FY16. This was a function of higher dividend receipts and exchange rate movements. Based on its current share price, JESC has a dividend yield of 1.7%.

Peer group comparison

JESC is the largest of four trusts in the AIC European Smaller Companies sector. Its NAV total returns are above average over all periods shown, ranking first over 10 years and second over one, three and five years. Its discount and ongoing charge are broadly average and, in common with most of the peers, no performance fee is payable. JESC’s dividend yield is the second highest in the group, where the average is skewed by European Assets Trust, which pays out an annual distribution of 6% of its year-end NAV.

Exhibit 9: AIC European Smaller Companies sector peer group as at 13 July 2018*

% unless stated

Market
cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount
(ex-par)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield

JPMorgan European Smaller Cos

642.4

9.5

73.6

125.0

233.6

(9.5)

1.0

No

100

1.7

European Assets Trust

423.3

2.4

37.0

89.6

205.9

(4.9)

1.1

No

100

6.1

Montanaro European Smaller Cos

151.4

14.2

86.4

98.4

220.5

(10.1)

1.3

No

103

0.9

TR European Growth

498.6

(2.5)

69.3

136.5

207.1

(10.4)

0.8

Yes

109

1.2

Average (4 funds)

428.9

5.9

66.6

112.4

216.8

(8.7)

1.0

103

2.5

JESC rank in sector

1

2

2

2

1

2

3

3

2

Source: Morningstar, Edison Investment Research. Note: *Performance to 12 July 2018. TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are five directors on JESC’s board, all of whom are non-executive and independent of the manager. The chairman is Carolan Dobson, who was appointed to the board in September 2010 and assumed her current role in 2013. The other directors and their dates of appointment are: Stephen White (April 2012), Ashok Gupta (January 2013), Nicholas Smith (May 2015) and Marc Van Gelder (August 2016).

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US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Healthcare

Basilea Pharmaceutica — Oncology product portfolio to drive future growth

Basilea has successfully brought two anti-infective drugs to the market: Cresemba (severe mould infections) and Zevtera (bacterial infections). With the commercialisation of both assets largely in the hands of partners and Zevtera’s Phase III US clinical programme underway, we turn our focus to the next pillar of growth, the oncology portfolio. The recent deal with ArQule (in-licensing of Phase II product, derazantinib) means Basilea now has three diversified, early/mid-stage clinical assets targeting cancer resistance in its portfolio offering. We value Basilea at CHF119/share.

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