By Ronda Fears
Nashville, July 23 - On the heels of Roche Holding AG's better-than-expected results, Deutsche Bank Securities convertible analysts recommend its 0% due 2021 as the best way to play any strength in the stock.
"Roche reported [first half 2003] figures this morning which should be well-received by the market due to both a greater-than-expected margin upswing in its Pharma and Diagnostics divisions and a Pegasys sales figure which came in well above consensus," the analysts said in a report Wednesday.
Indeed, the analysts noted that Roche was firmer after the Swiss group said first-half adjusted net profit fell 24% to 1.59 billion Swiss francs, in line with expectations despite a sharp drop in financial income and as the Swiss franc's strength undercut strong underlying sales growth.
Roche shares gained €4.00, or 3.74%, to close at €111.00.
The 0% due 2021 was quoted by a European dealer up 0.375 point to 57.625 bid, 58 offered.
Along with the results, Roche reiterated that it expects fiscal 2003 underlying sales and operating profit to rise by double-digit percentage rates, while operating margin should at least stay stable at the 18.7% level in 2002.
"We believe that on a premium of 32.44%, [the Roche 0% convert due 2021] represents the best way to play any strength in the underlying on the back of this strong set of figures," the Deutsche analysts said.
The convert also is an ideal way to benefit from any pick up in Genentech volatility, as Roche holds a majority stake in that drug firm, the analysts added.
If Roche shares rise 5%, the analysts said the implied volatility on the 0% convert due 2021 would go from 26.47% to 21%, all other things remaining equal.
Roche 0% convertible due 2021
| Ask: | 57.938
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| Parity: | 43.746
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| Premium: | 32.44%
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| Equity price: | CHF111.25
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| Theoretical value: | 57.486
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| Stock volatility: | 26%
|
| Credit spread: | 45bps over Libor
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| Bond floor: | 53.612
|
| Convertible implied volatility: | 26.55%
|
| Delta: | 38.42%
|
| Call: | July 25, 2007
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| Note: Prices as of July 22 close.
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