AstraZeneca PLC

AstraZeneca PLC (LON: AZN) is a FTSE 100 listed science-led biopharmaceutical company, which focuses on the development, commercialisation, and discovery of prescription medicines. It was established on 6 April 1999 after the merger of Astra AB and Zeneca Group PLC. It is headquartered in Cambridge, United Kingdom. Presently, the merged entity AstraZeneca is present in over 100 countries.

Rationale for Valuation – Buy at GBX 8,055.00

• 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, 20-day SMA 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

1 December 2020: AZN agreed to sell the rights of Crestor (rosuvastatin) and associated medicines in over 30 countries in Europe, except the UK and Spain, to Grünenthal GmbH.

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

 (Source: Company Website)

• AZN delivered increases in the top line, 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)

 *Peers: Genmab A/S, Novo Nordisk A/S, Merck KGaA, Roche Holdings AG, and Indivior PLC.

Conclusion

AZN witnessed an increase in financial performance despite an unprecedented situation as prevailing currently due to Covid-19 mayhem. It witnessed an increase in the revenue across the portfolio of therapies and products in all locations. 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 8,055.00 (as on 7 December 2020, before the market close at 8:15 AM GMT), with lower double-digit upside potential based on 30.93x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

GlaxoSmithKline PLC

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 1,396.60

• Sanofi and GSK intend to make available 200 million doses of their adjuvanted recombinant protein-based COVID-19 vaccine.
• 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, 20-day SMA (1402.21), which is supporting the upside movement.
• According to the S&P Long-term Issuer Rating (April 2020), the Company’s debt rating was A, with a stable outlook.
• 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

28 October 2020: 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.

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

Both companies (GSK and Sanofi) have signed agreements with Canada Government to make the COVID-19 vaccine available as soon as possible. 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 950.21 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 1,396.60 (as on 7 December 2020, before the market close at 8:10 AM GMT), with lower double-digit upside potential based on 15.13x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Hikma Pharmaceuticals PLC – Improved guidance following the strong H1 FY20.

FTSE 100-listed Hikma Pharmaceuticals PLC (LON: HIK) is the United Kingdom-based pharmaceuticals and biotechnology Company, specializes in the business of developing, manufacturing, and marketing of a portfolio of branded and non-branded generic medicines.

Rationale for Valuation – Buy at GBX 2,530.00

• From the technical standpoint, 14-day RSI (45.81), which is supporting the upside movement.
• It has raised full-year guidance for Generics and reiterated current guidance for Injectables and Branded.
• For Generics division, it continued to expect core operating margin in the range of 18% to 19% for the FY20.
• 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 global macroeconomic, political, and regulatory risks could further affect business performance.
• Being a Pharmaceuticals Company, it needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the Company’s financial performance.

Recent News

5 November 2020: Hikma has launched Icosapent Ethyl Capsules, 1gm, in the US through its US affiliate, Hikma Pharmaceuticals USA Inc.

Trading Statement (as on 5 November 2020)

• Hikma has been performing well, maintaining the positive momentum of H1 FY20.
• The operational excellence is supported by the breadth of its portfolio, the flexibility of its manufacturing capabilities and the strength of commercial and distribution channels.
• It continued to see good demand for marketed products and delivering strong performance from new launches.

One Year Share Price Chart

(Source: Kalkine Group, Refinitiv)

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

Conclusion

For global injectables division, it has reiterated its FY20’s revenue guidance of between $950 million and $980 million, with core operating margin in the range of 38% to 40%. For Generics division, it has increased the revenue guidance from US$710-730 million to US$720-740 million. Meanwhile, the Branded division is performing well with good demand across all markets. The stock made a 52-week low and high of GBX 1,596.00 and GBX 2,768.00, respectively.

Based on the strong trading momentum, and support from the valuation as done using the above method, we have given a “Buy” stance on Hikma Pharmaceuticals PLC at the current market price of GBX 2,530.00 (as on 7 December 2020, before the market close at 2.25 PM GMT), with lower double-digit upside potential based on 22.63x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Abcam PLC – Sustaining long-term growth and value creation

Founded in 1998 and headquartered in Cambridge, UK, Abcam PLC (LON: ABC) is a FTSE AIM 100 Index listed multinational Life Sciences Company, which produces and markets protein research agents and tools to assist life science researchers and clinical communities.

Rationale for Valuation – Buy at GBX 1,393.00

• Abcam is a global leader in the supply of life science research tools, which provides antibodies, reagents, biomarkers, and assays, which are used by nearly two-thirds of the world's 750,000 life science researchers.
• The Group has been delivering disruptive growth for the past twenty years. ABC’s citations have been growing with CAGR of over 18% since 2014. In FY19, over half of all life science publications cite had at least one Abcam product.
• From the technical standpoint, 14-day RSI (46.02), which reflects an uptrend in the stock and carrying the potential to move up further.
• As per valuation metrics, Price/Cash Flow, EV/Sales, and EV/EBITDA multiples of the Abcam PLC are currently lower as compared to the corresponding multiples of the Healthcare industry. 

Key Risks

• Due to ongoing Covid-19 pandemic, there has been a reduction in demand since research laboratories were temporarily shut during the second half of FY20.
• Moreover, there are operational risks arising from cyberattacks for loss of data and website inaccessibility, and constrained business growth with lack of resources.
• The significant exchange rate movements amid recessionary economic conditions can also pose a financial risk. Also, there are strategic risks to growth with increased competition and unavailability of research funding. 

Financial Highlights for the 12 months ended 30 June 2020 (as on 14 September 2020)

 (Source: Company Website)

• Abcam’s total revenue was nearly flat in FY20 against FY19.
• The impact of Covid-19 planned investments to support long-term strategy, and anticipated step up in non-cash items reduced the profitability for the year.
• The Company distributed £25 million of dividends during the year.
• At the year end, the Company had a strong net cash position of £80.9 million, which was supported by £110 million equity placing in April 2020.

One Year Share Price Chart

(Source: Kalkine Group, Refinitiv)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

Despite the regional differences and macro uncertainties, Abcam continued to see demand improvement. The Group made increased investment in global operations, technology, e-commerce, digital marketing and research and development to achieve faster growth in the medium to long term. The Group is focused on making progress in completing several acquisitions despite the impact of Covid-19. Abcam is targeting the revenue of £450-500 million, Return on Capital Employed of over 18%, and an adjusted operating margin of over 30% by FY24. The stock made a 52-week low and high of GBX 943.00 and GBX 1,584.00, 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 Abcam PLC at the current market price of GBX 1,393.00 (as on 7 December 2020, before the market close at 8:45 AM GMT), with lower double-digit upside potential based on 11.06x EV/Sales (approx.) on FY21E Sales (approx.).

 

UDG Healthcare PLC – Remained a strong and well-diversified business.

UDG Healthcare PLC (LON: UDG) is a FTSE 250 listed healthcare service provider. It was established in 1948 and is headquartered in Dublin, the Republic of Ireland. It provides services related to the advisory, commercial, communication, clinical, technology and packaging services.

Rationale for Valuation – Buy at GBX 770.50

• From the technical standpoint, shares were trading well above the short-term support level of 20-day SMA (753.70), which reflects an uptrend in the stock and carrying the potential to move up further.
• In FY20, ROCE increased from 13.1% in FY19 to 13.5% in FY20.
• The Company has proposed a 1.6% increase in the final dividend to 12.54 US cent per share, which will give a full year dividend increase of 1.2% to 17.00 US cent per share.
• The strong trading performance and 34% year-on-year increase in adjusted operating profit of Sharp division led FY20’s EPS ahead of guidance.

Risk Assessments

• Economic and political uncertainties arising from Covid-19 mayhem and Brexit can impact the client base and activity level across the global operations.
• The Company is further exposed to currency, liquidity, credit, and interest rate risk during the pandemic due to global operations.
• Moreover, failure to meet the stringent regulatory requirements can cause financial penalty and significant liability over the business.
• Also, the inability to capitalise on expected synergy from the integration acquisitions can hamper the growth prospects of the Company.

Recent News

1 October 2020: Ms Anne Whitaker was appointed as a Non-Executive Director of the Company. She joined the UDH’s board with immediate effect.

Financial Highlights for the year ended 30 September 2020 (as on 24 November 2020)

(Source: Company Website)

• UDG reported adjusted diluted earnings per share of 47.71 US cents, which was ahead of EPS guidance of 43 to 45 US cents announced in August 2020.
• In FY20, net revenue increased by 5%, while adjusted operating profit increased by 7% year-on-year. It was driven by an exceptionally strong performance from Sharp with adjusted operating profit increasing by 34%, and resilient performance from Ashfield.
• The company Continued strong cash flow performance with a free cash flow conversion rate of 111%.
• At the end of FY20, UDG reported a robust balance sheet and liquidity position with net debt to EBITDA of 0.1x.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company continued the momentum of strong performance with some impact on Ashfield’s operating profit due to Covid-19 pandemic. It has strong financial and balance sheet position, which is reflected in their intention to increase the final dividend for FY20. There has been a strong demand for existing as well as newly launched products in the market. The positive market dynamics and growing FDA approvals would benefit the Group. The Company has a global presence and strong market position, which could enhance the business growth rate. UDG has a strong pipeline of investment opportunities which will fetch higher returns in the long-term. Stock 52 week High and Low were GBX 842.00 and GBX 423.40, 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 UDG Healthcare PLC at the current market price of GBX 770.50 (as on 7 December 2020, before the market close at 8.45 AM GMT), with lower double-digit upside potential based on 22.09x Price/NTM Earnings (approx.) on FY21E 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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