- Ex-Covid revenue up 15 per cent
- R&D getting costlier
When a company as large and consequential as AstraZeneca (AZN) shows some signs of weakness, no matter how transient, investors are bound to react negatively. This was the case when the group reported its (largely in-line) results for the year to 31 December 2023 – sending the shares down nearly 6 per cent by mid-morning.
The pharma giant’s core earnings per share for the fourth quarter came in 3 per cent below analyst consensus, while its oncology division underperformed expectations by 1 per cent. Meanwhile, core operating profit in the three months to the end of last year ultimately landed 14 per cent below the market’s forecasts. It’s clear investors view these figures as an inauspicious sign of things to come in 2024.
However, if we zoom out for a moment, it becomes evident that the company’s historic strengths are still very much in place. Excluding Covid-19 products, AstraZeneca’s total revenue increased by 15 per cent for the full year, with oncology sales growing by a robust 21 per cent. Its pipeline of near-to-market drugs remains one of the strongest in the industry – with some 30 phase III trials initiated in 2023.
The company has also been in an acquisitive mood of late – picking up both RSV vaccine maker Icosavax and cell therapy manufacturer Gracell Biotechnologies in December. However, all of this progress hasn’t come cheap: R&D and marketing expenses were higher than expected in Q4, a trend that UBS analysts attributed to “investment in 2024 pre-launch activities”.
Bringing drugs to market en masse is not a cheap endeavour and, according to Shore Capital, “there had been an element of uncertainty heading into the results around how quickly the cost base could continue to evolve”. Research and development as a percentage of total revenue expanded to almost 24 per cent in FY2023 (from 22 per cent the year before).
Whether AstraZeneca can ultimately replicate last year’s revenue and profit progress remains to be seen. The board seems to be managing expectations fairly carefully – stating that total revenue for 2024 will increase by a low double-digit to low teens percentage at constant exchange rates. This implies 10-14 per cent growth – which is more or less in line with its ex-Covid sales expansion in 2023.
The shares currently trade on 15 times forward earnings, leaving AstraZeneca broadly in line with its peers in big pharma. We continue to think this is a price worth paying for world-leading science, even if growth is more muted in the short term. Buy.
Last IC view: Buy, 11,124p, 28 July 2023
| ASTRAZENECA (AZN) | ||||
| ORD PRICE: | 10,234p | MARKET VALUE: | £159bn | |
| TOUCH: | 10,232-10,234p | 12-MONTH HIGH: | 12,392p | LOW: 9,778p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 34 | |
| NET ASSET VALUE: | 2,525ȼ* | NET DEBT: | 58% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($mn) | Earnings per share (ȼ) | Dividend per share (ȼ) |
| 2019 | 24.4 | 1.55 | 103 | 218 |
| 2020 | 26.6 | 3.91 | 244 | 207 |
| 2021 | 37.4 | -0.26 | 8.00 | 210 |
| 2022 | 44.4 | 2.50 | 212 | 290 |
| 2023 | 45.8 | 6.90 | 384 | 290 |
| % change | +3 | +176 | +81 | |
| Ex-div: | 22 Feb | |||
| Payment: | 25 Mar | |||
| NB: £1=$1.26 *Includes intangible assets of $58bn, or 3,751ȼ a share | ||||
