The prospective inclusion of Mayne Pharma in the elite ASX 100 sharemarket index is expected to propel further institutional investor interest in the company following its planned $US652 million ($888 million) acquisition of a number of generic drugs in the US, analysts said.
Shares in the company surged to close at $1.91, up 28.6 per cent, on Thursday after Mayne Pharma completed the institutional portion of its planned $888 million of equity raisings, via a placement at $1.50 a share and a rights issue on the basis of one for each 1.725 shares held, priced at $1.28.
The company raised $287 million via the placement and a further $347 million from the rights issue. Retail investors will now have the opportunity to take up their entitlements, which would raise a further $254 million.
At Thursday's closing price, Mayne Nickless has a sharemarket worth of $2.4 billion, which will move closer to $3 billion once the rest of the equity raising is completed next month. That will open the door for it to be included in the ASX 100 index.
"Mayne's new free-float market cap is large enough to put the company in contention for ASX100 inclusion," Wilson HTM analyst Shane Storey told clients on Thursday.
"Inclusion is unlikely in the September '16 or December '16 rebalances. Assuming a 2017 entry, our view is that earnings momentum will be sufficient to limit share price risk during such a market transition."
Securities analysts who follow Mayne Pharma have pencilled in a 12-month price target of around $1.80 a share, with Patersons the outlier with a $2.56 target.
"Post-transaction multiples at circa 13 times (pre-amortisation) are now undemanding," Patersons analyst Martyn Jacobs told clients. "We now value Mayne Pharma at $2.56 a share, excluding potential synergies/pipeline and retain our high conviction 'buy'."
The purchase of the portfolio of 42 drugs comes as Mayne Pharma is upgrading its US production capacity, which is due to be completed in 2018.
The drugs are being acquired from Teva and Allergan ahead of the planned merger of the two companies, which has prompted the US government to push for the sales before it will approve the merger. Mayne intends to bring production of a number of the drugs in-house to help maximise profit margins.
Analysts said the profit margin on the drugs being acquired, at around 50 per cent, is more than double Mayne's existing margins, and the purchase also gives it entry to new sectors of the market, such as oral contraceptives.
The higher margins will lift cashflow and help eliminate most of the group's debt over the next 18 months or so, analysts said, although Mayne Pharma has indicated it may make more acquisitions, which could be funded by further borrowings, they said.
