The year 2023 must have seemed very distant back in 2014 when Pascal Soriot was fending off Pfizer. The AstraZeneca boss pledged to nearly double sales to $45 billion. Few nowadays take the target that seriously.
But the direction of travel was the key point. As speculation mounts that another foreign suitor — this time Novartis — is eyeing up AstraZeneca’s drugs pipeline, Mr Soriot has his eyes fixed on the sunlit uplands of 2018.
That just leaves 2017 to contend with. He says the next 12 to 18 months are critical for AstraZeneca. This is when some of its star candidates have to leap out of the lab and into hospitals and pharmacies. It badly needs new blockbusters to make up for disappearing sales of bestsellers like Crestor, its cholesterol drug, which is coming to the end of its patent-protected life. Between three of its bestsellers, Mr Soriot reckons they have $17 billion of sales to make up. That’s quite an uphill struggle.
Any poor read-outs from its trials or regulatory set-backs will leave it exposed to a loss of faith in him. In the meantime, there is intense pricing pressure.
There are grounds for optimism. First, many analysts believe AstraZeneca’s pipeline is one of the most promising in the sector, particularly in immuno-oncology, the branch of cancer treatment that tries to target the body’s immune system. So it can reach those sunlit uplands that Mr Soriot has been talking up.
Second, if it gets there, others will struggle to catch up. The next generation of cancer drugs will be harder for generic manufacturers to copy than the “small molecules” of old. They may not be running up an escalator travelling in the opposite direction for much longer.
Finally, there is the tantalising possibility of a takeover. As the Japanese acquisition of Arm Holdings has reminded us, British-based businesses became a lot cheaper on June 24.
Theresa May explicitly mentioned the pharmaceuticals industry when she spoke of the need to protect key British industries. But as Mr Soriot reminded us yesterday, there are few better places to do science in the world than Cambridge. The prime minister would need assurance, but it would be forthcoming.
MY ADVICE Buy
WHY AstraZeneca has a well-regarded pipeline in promising areas — with the tantalising bonus of being a potential acquisition target
Diageo
This time last year Ivan Menezes looked in danger of losing his job. The Diageo chief executive had presided over two years of poor trading and he was forced to defend himself against allegations that the drinks giant had oversupplied American distributors to flatter sales.
With core brands such as Smirnoff vodka, Captain Morgan rum and Johnnie Walker Scotch whisky under the cosh, particularly in the key United States market, the pressure on Mr Menezes to deliver a turnaround became intense.
Yesterday the smile was back on his face as the group’s six global brands all increased organic sales in the year to the end of June. Only Johnnie Walker went backwards on volumes, although the rate of decline slowed markedly and Mr Menezes insisted that the brand would be back in growth in the current year.
Crucially, its US business also returned to growth amid marketing efforts and efficiency initiatives.
Emerging markets, once hailed as the jewel in the Diageo crown, have proved trickier. So although Mexico, Colombia and India all grew strongly, the Diageo boss admitted that markets such as Brazil, Nigeria and Russia had been “very challenged” during the year. He was nevertheless confident that there would be a wider improvement over the next 12 months driven by India, Latin America, Africa and China.
The fruits of his hard work, allied to the currency benefit from the post-Brexit slump in the pound, mean that Mr Menezes should be safe in his job for a while yet. The shares added 54p to close at £21.92.
MY ADVICE Buy
WHY Growth credentials restored; Brexit beneficiary
RELX
RELX, or Reed Elsevier, as it was once known, describes itself as a “world-leading provider of information and analytics for professional and business customers across industries”. In normal English this means that it publishes technical legal and scientific information for a subscription fee, hosts large industry exhibitions and provides detailed analytical information to a wide range of financial institutions.
It has customers in more than 180 countries and, so far this year, things seem to be going rather well, with half-year underlying revenue up 4 per cent at £3.25 billion and operating profit up 6 per cent to just over £1 billion. This has helped to generate an 8 per cent earnings per share growth at constant currency. Not too shabby.
There has been a rather significant 39 per cent uplift in the interim dividend to 10.25p a share but this was a result of exchange rate movements rather than any change to its full-year dividend policy.
A significant restructuring from a focus on print publications to digital products and industry events has been better handled than many of its peers. Today only 12 per cent of its revenues come from print.
MY ADVICE Hold
WHY A good business with a 30 per cent profit margin
And finally . . .
Countrywide, the UK’s biggest lettings and estate agency, has warned that its 2016 earnings will be lower than last year after commercial and London residential transactions stalled following the vote to leave the EU. Pre-tax profit fell 25 per cent to £22 million in the six months to June 30. Countrywide cited a hit to investment and a market slowdown in May and June before the vote. The warning was not as bad as investors had feared, however, and the shares jumped 6 per cent to 263p.
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