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The Expert View: AstraZeneca, GlaxoSmithKline and Asos

Our daily roundup of analyst commentary on shares, also including Sports Direct and N Brown.

by Michelle McGagh on Jul 14, 2017 at 05:00

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Key stats
Market capitalisation£63,191m
No. of shares out1,266m
No. of shares floating1,261m
No. of common shareholdersnot stated
No. of employees59700
Trading volume (10 day avg.)2m
Turnover17,909m USD
Profit before tax2,724m USD
Earnings per share2.15 USD
Cashflow per share3.52 USD
Cash per share3.63 USD

Soirot exit would be a blow to Astra

UBS is struggling to see any positives from a report that AstraZeneca (AZN) chief executive Pascal Soirot is to leave the drugs giant.

Shares in AstraZeneca yesterday fell 4% to £49.84, after financial website Calcalist reported Soriot was expected to move to Israeli drugs group Teva.‘If true, no positive interpretation for Astra,’ said analyst Jack Scannell.

'Soriot is well regarded and the most positive interpretation would be that he thinks he has effected a major corporate transformation during five years at Astra, and that it might be more interesting (and, according to the press reports, perhaps more lucrative) to effect another corporate transformation than hang around. Even this though could potentially be received negatively,' he said.

'A bearish interpretation could be that he has less confidence in the path that Astra has transformed itself to pursue. This could range from less confidence in the general scientific evidence for Astra's combination immune-oncology, or it could be broader.'

Key stats
Market capitalisation£79,789m
No. of shares out4,918m
No. of shares floating4,859m
No. of common shareholdersnot stated
No. of employees99827
Trading volume (10 day avg.)7m
Profit before tax£912m
Earnings per share18.60p
Cashflow per share57.77p
Cash per share101.55p

All eyes on Walmsley’s Glaxo revamp

Jefferies is staying positive on shares in GlaxoSmithKline (GSK) as chief executive Emma Walmsley continues to stamp her mark on the drugs group.

Walmsley took over from Andrew Witty in April, and Jefferies analyst Jeffrey Holford expects her to cut back on some of the group’s drugs in development.

‘The strategic update is likely the key factor near term, which we think may be punctuated by some pruning of the pipeline and redefinition of the research and development strategy going forward,’ he said.

Witty rates GlaxoSmithKline a ‘buy’ and has a £19 price target on the shares, which were trading at £16.19 yesterday.

‘Underlying business trends are expected to be positive in pharma as the [cough and asthma treatment] Breo launch continues to improve and [HIV products] Tivicay / Triumeq volume growth remains strong,’ he added.

Holford has marginally lowered revenue estimates but edged forecasts for 2017 earnings per share higher after reviewing his model.

Key stats
Market capitalisation£4,867m
No. of shares out83m
No. of shares floating53m
No. of common shareholdersnot stated
No. of employees2381
Trading volume (10 day avg.)1m
Profit before tax£35m
Earnings per share41.71p
Cashflow per share79.81p
Cash per share207.72p

Asos builds momentum

Numis has hailed ‘another impressive trading update’ from online clothes retailer Asos (ASOS), which reported a 32% jump in sales growth in the four months to the end of June.

Analyst Andrew Wade said the performance was all the more impressive given the tough comparison it faced with a strong showing over the same period last year and the investment in its Eurohub2 distribution centre, hit by a fire earlier this year.

‘It is worth noting that growth could have been stronger but for reduced availability, as stock was kept tight through the Eurohub2 ramp-up,’ he said.

‘We leave our estimates unchanged and retain our positive stance, continuing to believe that Asos is taking the opportunity afforded by the foreign exchange tailwind, its strong proposition and clear trading momentum to aggressively build a bigger business, leaving it increasingly well-prepared and better differentiated.’

Wade has a ‘buy’ rating on Asos and £72.50 target price on the shares, which rose 1.5% to £58.94 yesterday.

Key stats
Market capitalisation£1,618m
No. of shares out532m
No. of shares floating201m
No. of common shareholdersnot stated
No. of employees18280
Trading volume (10 day avg.)2m
Profit before tax£277m
Earnings per share45.46p
Cashflow per share61.38p
Cash per share39.13p

Liberum sees sense in Sports Direct’s Game move

Liberum believes Sports Direct’s (SPD) acquisition of a 26% stake in computer games retailer Games Digital makes strategic sense, given both companies’ similar customers.

Shares in Games Digital rose 1% to 24.5p yesterday on the news, while Sports Direct was up 1% at 303p.

‘We see a number of reasons how Game Digital and Sports Direct can gain from a closer working relationship but it is surely the similar customer demographics that must be the key draw card here,’ said Adam Tomlinson, analyst at Liberum, which acts as corporate broker to both companies.

‘Game takes dominant market shares of 29% and 39% in the UK and Spanish gaming markets respectively. The opportunity in Spain is interesting, where Game has around 270 stores and Sports Direct has just two. Growing its business in the larger European markets has proved tricky for Sports Direct in the past and Game could help provide a platform there,’ he said.

Tomlinson also flagged potential in the growth of eSports. ‘While offering a key long-term opportunity for Game [it] also likely provides an attractive angle for Sports Direct as sportswear and equipment retailer,’ he said.

Key stats
Market capitalisation£822m
No. of shares out283m
No. of shares floating148m
No. of common shareholdersnot stated
No. of employees2742
Trading volume (10 day avg.)1m
Profit before tax£44m
Earnings per share15.66p
Cashflow per share25.41p
Cash per share22.62p

N Brown dividend should survive compensation hit

Peel Hunt believes plus-size clothing retailer N Brown’s (BWNG) should survive the latest compensation claim to hit the business.

N Brown has announced costs of up to £40 million related to the sale of general insurance products sold on items.

‘With annual free cash flow of around £40 million before dividends, this comes at a cost to the balance sheet,’ said Peel Hunt analyst John Stevenson.

‘Dividend cuts would be a last resort and look unlikely given the current trading momentum, particularly given free cash flow is a function of the growth in the customer debt book and not underlying cash generation,’ he said.

Stevenson kept his ‘hold’ rating and 305p target price on the shares, which fell 4.4% to 291.1p yesterday.

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  • AstraZeneca PLC (AZN.L)
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  • GlaxoSmithKline PLC (GSK.L)
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  • Sports Direct International PLC (SPD.L)
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  • N Brown Group PLC (BWNG.L)
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