Sam Morse, manager of IC Top 100 Fund Fidelity European Values (FEV), explains why he invests in Danish pharmaceutical company Novo Nordisk (NOVO B:CPH).
"My investment approach involves identifying companies with the best prospects for consistent dividend growth over the long term, and Novo Nordisk is one company that fits the bill.
"It is one of three companies that has the ability to produce insulin on an industrial scale, and is global number one in terms of volume. As a result, it stands to benefit from the increased levels of diabetes among both developed and emerging populations, as the disease is linked to a sedentary lifestyle and obesity, which unhappily is on the rise globally. This trend gives the company a solid growth runway for years and possibly decades.
"Furthermore, Novo Nordisk has leading positions and a strong pipeline in other product areas such as haemophilia and hormone replacement therapy, which provides the company with diversification and further growth potential.
"I like to hold shares over a multiyear period to minimise trading costs and reduce the risks of being influenced by short-termism in the market. Novo Nordisk is an example of a stock that has been a longstanding position for Fidelity European Values investment trust, and has performed extremely well in recent years.
"It now trades at the higher end of the range of valuations for large European pharmaceutical businesses. However, the quality of its business, strong free-cash-flow generation, high barriers to entry and strong drugs pipeline should lead to higher earnings and dividend growth over the long term."
Novo Nordisk is on a price/earnings ratio of 27 times. It is the third largest holding in Fidelity European Values' portfolio, accounting for 4.2 per cent of assets, with healthcare the third largest sector exposure at 18 per cent.
