AstraZeneca PLC – On track to meet full-year guidance

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 7,479.00

• The acquisition of Alexion would enhance AstraZeneca’s presence in immunology.
• 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 (43.82) 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

29 December 2020: AstraZeneca and MSD's Lynparza has been approved in Japan for the treatment of advanced ovarian, prostate and pancreatic cancers.

12 December 2020: AZN has entered into a definitive agreement to acquire Alexion, for the total consideration of US$39bn or $175 per share.

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)

*Peers: Orion Oyj, Virbac SA, Dermapharm Holding SE, and Dechra Pharmaceuticals PLC.  

*1 USD = 0.740470 GBP. 

Conclusion

AZN 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 7,479.00 (as on 30 December 2020, before the market close at 8:30 AM GMT), with lower double-digit upside potential based on 28.85x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

GlaxoSmithKline PLC – Made significant strategic progress in Q3 FY20 to deliver resilient performance.

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 1,369.00

• 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 a technical standpoint, 10-day SMA (1,356.20), 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

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

GSK continued to make progress in biopharma pipeline with three approvals since Q2 FY20 results. 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 1,369.00 (as on 30 December 2020, before the market close at 8:00 AM GMT), with lower double-digit upside potential based on 13.83x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Polymetal International Plc

Polymetal International Plc (LON: POLY) is an FTSE-100 index listed Company, which has a portfolio of nine producing gold and silver mines.

The Company expects to release the preliminary results for FY2020 on 3 March 2021.

Investment Highlights – Polymetal International Plc – Buy at GBX 1,732.50

• The Company during the Q3 FY2020 exceeded production budget and generated massive cash flows.
• In the last one year, the Company delivered a significant return of ~46.32% and delivered higher returns compared to the benchmark Index (FTSE-100 Index).
• As per valuation metrics, EV/EBITDA multiples of the Polymetal International Plc is currently lower as compared to the corresponding multiples of the Metals & Mining industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (GBX 1,664.80), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Covid-19 pandemic can disrupt the supply chain and planned production might not be achieved.
• Moreover, exploration and development are capital-intensive activities, failure to discover substantial reserves could adversely affect the POLY’s future performance.

Production Results for Q3 FY2020 (released on 22 October 2020)

• In the third quarter of financial year 2020, revenue increased by 35% on y-o-y basis to reach USD 884 million, due to increased sales volume and higher gold and silver prices.
• The Company also generated record quarterly free cash flow in Q3 FY2020, and therefore, net debt was down by USD 80 million to USD 1.61 billion.
• The production of gold equivalent increased by 7% year-on-year to 477 Koz of GE, driven by strong contributions from Omolon, Varvara, and Kyzyl.
• There was no fatal incident during the first nine months of 2020 either at Polymetal or at the Company's contractors.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company witnessed an increase in revenue for Q3 and 9M period, and generated record free cash flow in Q3 FY2020. Despite the covid-19 pandemic, the Company remained on track to meet production guidance of 1,500 Koz GE for FY2020. POLY maintained guidance for TCC (Total cash costs) and AISC (All-in sustaining costs) at US$ 650-700/GE oz and US$ 850-900/GE, respectively. The Company expects its production guidance to be 1,500 Koz GE in FY2021 and 1,600 Koz GE in FY2022. The stock made a 52-week low and high of GBX 990.20 and GBX 2,085.00, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on Polymetal International Plc at the current price of GBX 1,732.50 (as on 30 December 2020, before the market close at 8:50 AM GMT) with lower double-digit upside potential based on 11.97x Price/NTM Earnings (approx.) on FY20E earnings Per Share (approx.).

United Utilities Group Plc

United Utilities Group Plc (LON: UU.) manages electricity distribution, water distribution and wastewater network in the North West region of England.

Investment Highlights – United Utilities Group Plc – Buy at GBX 918.00

• The Company has made strong start to AMP7 (new regulatory period) and achieved positive momentum through additional investment.
• The Company has a strong balance sheet and received a stable credit rating of A3 with Moody’s.
• In the last three months, the Company delivered a decent return of ~8.23% and delivered higher returns compared to the benchmark Index (FTSE-100 Index).
• From the technical standpoint, shares were trading well above the support level of 200-day simple moving average prices (GBX 891.60), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Company is exposed to a fundamental change to the regulatory framework, which can have an adverse impact on the business and economic model.
• The Company operates in multiple geographies, and its profits can be impacted negatively due to the foreign exchange rate fluctuations.

Financial Highlights – H1 FY2021 (30 September 2020) (released on 25 November 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2021, despite the lower revenue and operating profit, the financial performance remained strong.
• Driven by new price control, the underlying PAT (profit after tax) declined by 16% to £174 million.
• During the period, household cash collection and customer debtor position remained strong.
• The growth of AMP7 dividend policy remained in line with CPIH inflation in the first half of FY2021.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company’s operational performance remained on track in first year of the new regulatory period, despite the impact of pandemic. The Company continue to provide high-quality wastewater and water services in the North West. UU managed to reduce average customer bills by 7% on real terms basis and launched financial assistance schemes for those who are struggling to pay bills. The Company has a strong balance sheet and a fully funded pension scheme. United Utilities Group has set a target of paying dividend in line with inflation each year through 2025. The stock made a 52-week low and high of GBX 743.00 and GBX 1,068.50, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” recommendation on United Utilities Group Plc at the current price of GBX 918.00 (as on 30 December 2020, before the market close at 8:30 AM GMT), with lower double-digit upside potential based on 22.41x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Centamin PLC – Marked solid performance in Q3 FY20.

Jersey-headquartered Centamin PLC (LON: CEY) is Gold Mining Company, specialises into exploration and development of minerals. It owns Sukari Gold Mine in Egypt with a current production capacity of 500,000 ounces per annum.

Investment Rationale – Buy at GBX 124.60

• From a technical standpoint, 90-RSI (45.01) is supporting the upside potential.
• Over the past two years, (H1 FY18 to H1 FY20), gross profit has surged at a CAGR of 119.89%.
• The Group has confirmed FY20 guidance of 445,000-455,000 oz of gold produced, at cash costs of US$740-790/oz produced and AISC of US$950-1,050/oz sold.
• The key trading multiples (Price/Earnings, Price/Cash Flow and Price/Book) multiples are currently undervalued compared to corresponding multiples of the Basic Materials industry.

Risk Assessments

• It is exposed to financial risk with fluctuations in Gold price and exchange rates.
• Furthermore, the unavailability of adequate working capital can impact regular revenue and cash flow.
• The Global Covid-19 pandemic could result in the suspension of operations and increase the labour absenteeism, and thus, the operation costs.

Recent News

2 December 2020: Centamin has completed Phase 1 of the two-phase LOA at Sukari. Further, the Board intend to recommend US$35 million as the FY20 final dividend, bringing the total dividend to US$104 million.

Q3 FY20 Report for the three months ended 30 September 2020 (as on 21 October 2020)

 (Source: Company Website)

• During Q3 FY20, the Company delivered a solid performance, which has brought year to date free cash flow generated to US$137 million, with US$345 million in net cash and liquid assets, reflecting a strong balance sheet position.
• Following the operational update on 2 October 2020, the Company refined our 2020 guidance to 445,000 - 455,000 ounces of gold produced.
• During Q3 FY20, gold production was 128,240 ounces from the Sukari Gold Mine.
• The revenue generated was US$230 million from gold sales of 118,617 oz at an average realised gold price of US$1,933/oz sold.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

There were zero lost-time injuries in Q3 FY20, while the Company confronted no material operational impact on the supply chain due to Covid-19 mayhem. Due to operational efficiencies, cost per tonne also improved. Due to the rescheduling of the open pit operations the Company forecasts FY21 gold production of 400,000-430,000 oz, at cash costs of US$875-950/oz produced and AISC of US$1,200-1,275/oz sold. In a nutshell, it is aiming to generate a significant sustainable return for the shareholders. Stock 52 week High and Low were GBX 233.30 and GBX 88.28, respectively.

(Source: Company Website)

Based on the factors discussed above, we have given a “Buy” recommendation on Centamin PLC at the current market price of GBX 124.60 (as on 30 December 2020, before the market close at 9.06 AM GMT) with lower double-digit upside potential based on 16.12x 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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