AstraZeneca, Pfizer and Moderna are jostling for prime position in a post-Covid world as demand for their pandemic jabs declines and as they seek other drugs to sell. How well they achieve that goal will have a long-term effect on their shares.
Astra is by value the biggest company on the London stock market, roughly neck-and-neck with Pfizer, its American rival, while Moderna is only about a fifth as big. The Anglo-Swedish group’s price has more than doubled since January 2019 and four months ago touched a 20-year high of £122.94. This column said “buy” last September at £99.
The pandemic was a bonus for these companies, which now are returning to something like normal and have turned to dealmaking. In January Astra bought Cincor Pharma, an American kidney and heart specialist, for $1.8 billion; in June it signed an exclusive option and licence agreement with Quell Therapeutics to develop cell therapies that could cure type 1 diabetes and inflammatory bowel disease. As part of the poker game among the Big Pharma players, Alexion, its rare diseases business, bought a pre-clinical gene therapies collection from Pfizer for up to $1 billion.
Unlike the others, Astra has been mired in Covid lawsuits over rare blood clots. Sales of its Vaxzevria vaccine were zero in the April-to-June quarter, compared with $455 million in the same period last year. But the recent rise in British coronavirus cases has reminded us that the disease has not gone away. Steve Barclay, the health secretary, has said that a booster will be offered this autumn for those at higher risk of severe disease and Vaxzevria is likely to be part of that scheme.
Last month, Astra announced a 4 per cent rise in total revenue to $22.3 billion for the half-year to the end of June. Non-Covid revenue was up 16 per cent. Pre-tax profit jumped from $800 million to $4.3 billion.
Advertisement
Despite absorbing a hefty one fifth of revenues, Sir Pascal Soriot, the chief executive, is finding that his ten-year investment in research and development is beginning to pay off. Oncology medicines were Astra’s star performer in the first six months, up 22 per cent to claim 39 per cent of total group revenue. Cardiovascular drugs were close behind, showing a 20 per cent sales increase, followed by those for rare diseases (up 12 per cent) and respiratory and immunology (up 10 per cent). In all, eight medicines of different types registered revenue above $1 billion.
The group has more than 120 late-stage clinical trials under way. Ten blockbusters could spring from 30 so-called phase three trials that are due due before this Christmas. One drug, datopotamab deruxtecan, being developed with Daiichi Sankyo, of Japan, recently captured headlines for braking the progression of lung cancer. According to Allied Market Research, the global metastatic cancer drugs market was worth $67.7 billion in 2022 and a compound annual growth rate of 7.3 per cent is expected over the next decade.
By then Soriot, 64, likely will have passed the baton to a successor. In common with other successful research-led pharma companies, he has run the group like an investment trust that bets on a range of embryonic potions. Many wagers will fail, but a few may be game-changers. So far, Soriot has chosen well and laid strong foundations.
Astra forecasts “low-to-mid-single-digit” percentage revenue growth for the full year, while core earnings per share are expected to swell by a “high-single-digit to low-double-digit” per cent. A 10 per cent gain on 2022’s $6.66 would take it to $7.32, for a reasonable 19 price-earnings ratio. The interim dividend was unchanged, but there should be a higher year-end payout. Adding a tenth would take it to £2.51, offering a decent 2.3 per cent yield with plenty of scope for future rises.
ADVICE Buy
WHY Sir Pascal Soriot’s strategy is placing the company and its shares in a strong long-term position
Clarkson
Yet again, Clarkson has produced sparkling results and the stock market has shrugged. Revenue for the half-year to the end of June rose from £266.7 million to £321.1 million, taking its pre-tax profit up from £42 million to £52.2 million. The interim dividend is a penny higher at 30p. The company has even been touted as a takeover candidate because of its high cashflow and net cash.
Advertisement
Clarkson is overwhelmingly a shipbroking business, accounting for 80.1 per cent of the latest half-year revenues, with financial (8.25 per cent), support (8.47 per cent) and research (3.18 per cent) adding a range of related services. That means it is tied to the notoriously cyclical shipping industry, which is going through more uncertain times than normal.
Of the other divisions, financial operates as a mini investment bank, financing shipping deals and projects. Support supplies everything from stevedores to repair services. Research publishes regular reports on the industry.
The biggest recent change in shipping has been the radical reduction in ships’ greenhouse gas emissions. Demand for predicting, recording and analysing emissions data has been surging, good news for the company’s broking, research and technology teams. This should translate to orders for new vessels, temporarily constrained by the economic environment and the Ukraine war. Weaker container demand has meant lower rates, although Ukraine has given the tanker market a fillip.
Little-noticed has been the acquisition in February of DHSS, a Dutch logistics group. Among its services are installing, operating and maintaining offshore wind farms, which may provide insurance broking opportunities.
The company expects the second half-year to match its first. If so, that would add up to 261p earnings per share for 2023, giving a modest 10.9 price-earnings ratio. It has raised its dividend for 20 consecutive years and a 21st is a racing certainty, for a 3.3 per cent yield.
ADVICE Buy
WHY A reliable dividend while awaiting share price recovery
