AstraZeneca PLC – Encouraged by the vaccine approval.

AstraZeneca PLC (LON: AZN) is a FTSE 100 listed science-led biopharmaceutical company, which focuses on the development, commercialisation, and discovery of prescription medicines.

Rationale for Valuation – Buy at GBX 7,388.00

• The approval of AstraZeneca’s vaccine is a landmark moment, and it is targeting to produce up to three billion doses of the vaccine globally in 2021.
• In Q3 FY20, AZN witnessed an increase in the revenue across the portfolio of therapies and products in all locations.
• For FY20, total revenue is expected to increase by a high single-digit to a low double-digit percentage and Core EPS is expected to increase by a mid-to high-teens percentage.
• AZN has 17 phase III medicines in pipeline, which underpins the prospects of sustainable revenue and earnings growth. In the H1 FY20 period, AZN continued to grow revenue, cash flow and profit, which was supported by the launch of new medicines.
• From a technical standpoint, 14-day RSI (46.91) is supporting the upside potential.
• As per valuation metrics, Price/ Cash Flow, EV/Sales, Price/Book, and Price/Earnings multiples of the AstraZeneca PLC are currently lower.

Key Risks

• The Company is also exposed to commercialisation risks such as competitive pressures, affordability, pricing and delays or failure in quality execution of commercial strategies.
• Also, during the Covid-19 and Brexit uncertainties, there is a risk to supply chain and operational costs. Furthermore, the recessionary economic conditions can put pressure over the strategic targets.

Recent News

6 January 2021: AZN’s Farxiga has been granted Priority Review for the treatment of chronic kidney disease in the US.

30 December 2020: AZN’s Covid-19 vaccine has been approved for emergency supply in the UK. Moreover, the regulatory interactions continued around the world for next approvals.

Q3 FY20 Results for the quarter ended 30 September 2020 (as on 5 November 2020)

 (Source: Company Website)

• In Q3 FY20, AZN reported an increase in profit, and cash, underpinned by a strategy of sustainable growth through innovation.
• Farxiga is expanding its potential beyond diabetes and heart failure.
• For Covid-19, it has advanced its vaccine collaboration with the University of Oxford and is launching Phase III trials.
• Overall, the Company continued to progress in line with its expectations and maintained its full-year guidance.

One Year Share Price Chart

 (Source: Kalkine Group, Refinitiv)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The acquisition of Alexionn would enhance AstraZeneca’s presence in immunology. Moreover, the full-year guidance is supported by exciting new medicines pipeline and focused commercial execution. The Company affirmed that the recent issuance of bonds would not affect the financial guidance for FY20. In FY20, total revenue is projected to surge by a high single-digit to a low double-digit percentage, while EPS should increase by a mid-to high-teens percentage. Meanwhile, the Company is focusing on improving operational leverage while the capital expenditure will remain broadly stable as compared to the previous year. The stock made a 52-week high and low of GBX 10,120.00 and GBX 5,871.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” stance on AstraZeneca PLC at the current market price of GBX 7,388.00 (as on 13 January 2021, before the market close at 8:00 AM GMT), with lower double-digit upside potential based on 28.89x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

GlaxoSmithKline PLC – Demonstrated financial resilience and solid commercial execution.

GlaxoSmithKline PLC (LON: GSK) is a FTSE 100 listed multinational Healthcare Company, which operates with three global businesses that manufacture and conduct research on products related to pharmaceutical, consumer healthcare and vaccines.

Rationale for Valuation – Buy at GBX 1,360.20

• GlaxoSmithKline continued progress in biopharma pipeline with three approvals since Q2 FY20.
• GSK is on track to deliver full-year Adjusted EPS at the lower end of the -1% to -4% range at the constant exchange rate.
• GSK has responded well to a challenging operating environment with disciplined cost control and strong commercial momentum in key growth products.
• From the technical standpoint, 14-day RSI (47.11) which is supporting the upside movement.
• The Company has decent fundamental metrics as it has maintained a Net margin above 15% for the last three years and ROE (return on equity) above 10% for the last two years.

Key Risks

• Brexit uncertainties and Covid-19 pandemic situation may impact the supply chain, clinical trials, and growth plans of the Company.
• Moreover, the healthcare industry is rapidly changing with the digital landscape and entrants of new players, which can lead to intense pricing pressure.
• Furthermore, the stringent regulatory policies and societal expectations regarding the safety, quality and efficacy puts substantial pressure over the profitability.

Recent News

21 December 2020: GSK owned, ViiV Healthcare announced the authorisation of Vocabria, in combination with Janssen Pharmaceutical Companies and Edurant, for the treatment of HIV-1 infection in adults who are virologically suppressed.

11 December 2020: GSK and Sanofi announced a delay in their adjuvanted recombinant protein-based COVID-19 vaccine program to improve immune response in older adults.

Q3 FY20 Results for the quarter ended 30 September 2020 (as on 28 October 2020)

 (Source: Company Website)

• In Q3 FY20, GSK reported the sales of £8.6 billion, wherein the sales of new and specialty pharmaceuticals contributed £2.5 billion.
• The Group operating margin was 21.5%; however, the total EPS declined 20% year-on-year to 25.0 pence.
• GSK declared a dividend of 19 pence for the quarter.
• In terms of pipeline, the Group continued progress in biopharma pipeline with 3 approvals since Q2 results.

One Year Share Price Chart

 (Source: Kalkine Group, Refinitiv) 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

Regarding Covid-19 solutions, GSK and Sanofi have signed a statement of intent with Gavi (the legal administrator of the COVAX Facility) to support COVAX with 200 million doses of adjuvanted. Looking ahead, Glaxo maintained the guidance of annual adjusted earnings per share falling between 1% to 4% at constant currency. Also, GSK has made strategic investments in next-generation vaccine and antibody technologies. Overall, the Company is maintaining good momentum on the strategic priorities, and the fundamentals of GSK’s business stay strong. The stock made a 52-week low and high of GBX 1,284.00 and GBX 1,807.50, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” stance on GlaxoSmithKline PLC at the current market price of GBX 1,360.20 (as on 13 January 2021, before the market close at 8:00 AM GMT), with lower double-digit upside potential based on 14.14x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

*All forecasted figures and Industry/Peer Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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