The most significant aspect of the AstraZeneca announcement last Friday was what was not said. News reports rightly concentrated on the company’s intention to “transition to modest profitability” from its current at-cost Covid vaccine policy, together with buoyant third-quarter results that nevertheless fell short of analysts’ expectations.
Yet underlying the immediate 6.8 per cent fall in the share price may have been a more serious concern. The financial undershoot and the vaccine pricing are of a piece with the less than adroit handling of the vaccine rollout last year, including poor messaging surrounding its efficacy.
Not for nothing is it among the least favoured jabs for those who have a choice. The Joint Committee on Vaccination and Immunisation has said that people should be offered the Pfizer or Moderna jab as a booster, irrespective of which vaccine they had initially.
Astra management can point to some fine achievements, chiefly becoming a world-class vaccine developer and distributor from a standing start less than two years ago. The acquisition of Alexion Pharmaceuticals this summer has built on this by adding a strong position in fighting rare diseases. To make the most of that position, Astra has now launched a dedicated unit for antibody medicine research, manufacture and sales, aimed at creating mini-monopolies in areas that few rivals will follow.
But the stock market is plainly uneasy with the shares, which, rightly or wrongly, can be traced to a perception of softness at board level. The decision to sell the Covid vaccine at cost won the company ovations when the pandemic was at its height; by comparison, its rivals’ profit-seeking seemed grubby. Now, though, it has lost that moral advantage and appears to be playing catch-up. And Johnson & Johnson’s impending corporate split into toiletries and prescription drugs may add to competitive pressure.
Excluding Covid, total Astra revenue rose by a third in the three months to the end of September. Best performers this year have been anti-cancer, cardiovascular, respiratory and immunology treatments, and eight of its drugs have reached phase three trials. The US remains the group’s biggest single market, although it has been outstripped by the combined emerging markets.
Pascal Soriot, chief executive, summed up: “Our broad portfolio of medicines and diversified geographic exposure provides a robust platform for long-term sustainable growth. We expect a solid finish to the year.”
But while third-quarter revenue, excluding the Covid-19 vaccine, rose by 34 per cent to $8.8 billion, core earnings were $1.08 per share, against the $1.28 analysts were expecting. And Soriot disappointed by not lifting earnings guidance for the year, which is $5.05 to $5.40.
That would put the shares on 19.3 times annual earnings, according to Refinitiv, backed by a 2.3 per cent prospective dividend yield. Pfizer’s forward p/e ratio is 13.55, and investors have to ask if AstraZeneca deserves the premium.
One possibility, as no one holds more than 6 per cent of the equity, is that a takeover bid could materialise if the price slides far enough, as the present level would deter predators with all but the deepest pockets. Another potential floor under the shares is that if they sink much further they could appear on income investors’ radar.
The shares have more than doubled in the past five years and, despite Friday’s setback, have added 350p since the initial Covid shock. But while yesterday’s partial recovery was encouraging and the company clearly has plenty in the pipeline, questions remain over the vision and decisiveness at the top level.
ADVICE Hold
WHY Plenty of possibilities, but too many unknowns
Watches of Switzerland
Recent panic buying has not been confined to petrol and loo rolls. Some consumers, it turns out, are worried they may not be able to secure their fill of the £8,000 James Bond edition of Omega’s Seamaster Diver 300m watch.
While such a first-world problem may smack of the former Mappin & Webb customer Marie Antoinette’s “Let them eat cake”, it shows that lockdown savings are being released in unexpected ways. Watches of Switzerland (WoS), which owns Mappin & Webb and floated only months before the pandemic, relies on catching the public in a spending mood at airports or tourist destinations. This year, in the absence of many tourists, domestic UK and US buyers have taken up the running.
Brian Duffy, chief executive, said: “Our feeling is that we have a higher proportion of female consumers, and of people buying for themselves rather than gifting.” If these trends mean that Rolex, TAG Heuer, Omega or Breitling watches are becoming less of an occasion purchase, that will be good for turnover but may raise price-resistance.
The company has only just started a serious assault on the US watch and jewellery market, which should eventually dwarf UK sales, so there is excellent long-term potential.
Duffy announced that group revenues rose by 44.6 per cent to £586.2 million for the six months to end October, and raised his full-year revenue guidance by £100 million to between £1.15 billion and £1.2 billion. He also raised his expected ebitda (earnings before interest, taxes, depreciation and amortisation) margin — from flat to a 0.5 per cent increase on last year, to between 1 per cent and 1.5 per cent higher. If that translates to a 7.5 per cent margin, earnings per share could rise from last year’s 24p to 35p-37p, taking the price-earnings ratio down from 53 to a more reasonable but still demanding 34 to 36.
Since the pandemic low of 179p in April last year, WoS shares have risen in almost a straight line to £13.50. However, they have encountered profit-taking, clipping the price to £13.26 yesterday. While that is understandable, it may take a while to exhaust all the investors who want to take money off the table, keeping a brake on the shares in the short term.
ADVICE Hold
WHY The shares are due a breather, and may get cheaper