AstraZeneca (AZN) is a prime example of the value of patience in pharma. Five years after it initiated its ‘return to growth’ strategy, the company has finally reported a sizeable leap in product sales, driven by a 72 per cent constant-currency increase in revenues from new medicines to $2.4bn (£1.92bn).
In the past three years, the company has ploughed an average of 26 per cent of its revenue into research and development (R&D). That has left it with an impressive roster of new cancer drugs – three of which are well on their way to blockbuster status (annual revenues of more than $1bn). The pipeline is still full of trials, many of which are label extensions, which will help accelerate revenues from medicines that have already been approved.
Expenditure is now shifting from R&D to cheaper sales and marketing, which should help widen margins to send profits up faster than revenues. Consensus expectations are for earnings growth of 3 per cent in 2019, rising to 18 per cent in 2020 (from $3.46 in 2018). But more patience is required before those profits turn into meaningful cash – operating cash conversion was just 31 per cent in the first half and net debt remains at a lofty 1.8 times annual adjusted cash profits (Ebitda).
| ASTRAZENECA (AZN) | ||||
| ORD PRICE: | 6,704p | MARKET VALUE: | £87.8bn | |
| TOUCH: | 6701-6704p | 12-MONTH HIGH: | 6,770p | 5,312p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 49 | |
| NET ASSET VALUE: | 1034¢* | NET DEBT: | 87% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2018 | 10.3 | 786 | 54.0 | 90 |
| 2019 | 11.3 | 899 | 56.0 | 90 |
| % change | +10 | +14 | +4 | - |
| Ex-div: | 08 Aug | |||
| Payment: | 09 Sep | |||
| *Includes intangible assets of $33.9bn, or 2590¢ a share | ||||
| £1=$1.25 | ||||
