Among the clearest beneficiaries of the victory of Donald Trump in the US election are the big American pharmaceuticals companies. There was an assumption that a Hillary Clinton presidency would involve a sharp crackdown on the amount they could charge for their products after she accused the industry of “outrageous price-gouging”. Mr Trump made noises about some limitations on pricing, but this is not seen as a high priority.
So drugs company shares have rallied sharply, among them Shire, which is based in Dublin and is one of the core holdings of the Biotech Growth Trust. The whole sector got a further fillip at the end of last week when the news broke that Johnson & Johnson, of the United States, had approached the Swiss Actelion about a possible takeover.
The sector has undergone any degree of consolidation over the past couple of years. Johnson & Johnson itself has only just agreed to buy Abbott Laboratories’ specialist eye health business. The assumption is that if Mr Trump does cut corporate taxes, companies will be able to repatriate overseas earnings at a lower rate and that this could trigger further mergers and acquisitions.
In the immediate aftermath of the US election, the specialist biotech index on Nasdaq in New York shot up by 9 per cent. Among shares that went ahead in London was Biotech Growth, which aims to gain from investing in the biotech industry.
The trust does not pay a dividend and is very much an investment for the patient. It is managed by OrbiMed Capital, a specialist based in New York. The trust has a fairly limited number of holdings, only 35, with the ten biggest accounting for 72 per cent of the total. About 85 per cent of its portfolio is accounted for by US companies. About 60 per cent of that portfolio is in the larger companies.
The biggest holding is in Biogen, which specialises in next-generation therapies for multiple sclerosis and other neurological diseases. OrbiMed told City investors this month that its managers were particularly excited by the prospects for a treatment for Alzheimer’s.
Biotech Growth does not look cheap, but it does offer a quick and easy way into biotech investment and particularly the US industry.
My advice Buy
Why The shares are not cheap, but they do offer a good way into a US pharmaceuticals sector that looks ripe for consolidation
Capital & Counties
Further signs that life post-referendum is continuing with little change arrives from Capital & Counties Properties, whose assets are in the capital. Visits to its stores in Covent Garden are increasing, not entirely because of the lower pound and rising numbers of tourists. The first homes in the huge Earls Court redevelopment are sold, with no apparent squeeze on prices and plenty of domestic demand.
Capital & Counties shares were hit badly in the aftermath of the European Union poll because of fears over the London market, so its latest trading update is reassuring. There have been record levels of leasing activity so far this year, with brands such as Hotel Chocolat and Mulberry signed up.
Earls Court is a long-term project, with development on the main site not set to begin until 2018. The shares, which were around the latest published net asset value of 344p before the referendum, rose 21¼p to 285½p yesterday but are still well below the levels they enjoyed before the Brexit vote. That discount looks understandable given the continuing uncertainty and does not look set to narrow in the short term.
My advice Avoid
Why The shares look fairly priced for the London market
Aberdeen Asset Management
With 40 per cent or so of assets invested in emerging markets, the past couple of years have been difficult for Aberdeen Asset Management and just as things were beginning to turn in the fourth quarter to the end of September, the first positive period for several years with £600 million of net inflows, along comes Donald Trump.
What a Trump administration will actually look like is unclear, but any move to unravel the Trans-Pacific Partnership trade agreement, or even Nafta, the deal between Canada, Mexico and the United States, would be a negative for those emerging markets. Aberdeen says there has not actually been a degree of selling of its emerging markets funds, but investors are definitely sitting on their hands and refusing to take positions. And who can blame them in all that uncertainty?
Aberdeen got a boost from sterling, in terms of the value of assets held outside the UK, and from four acquisitions made recently, but there was a net outflow of £32.8 billion, which is painful. For investors, the question mark is over the dividend. This is maintained at a total of 19.5p for the year, but it is barely covered by earnings.
If the current year plays out like the last, that will have to be cut. There remains the possibility those long-running takeover rumours will lead to an offer. This does not seem a sufficient reason for holding the shares if that dividend is cut, removing the support of a 7 per cent yield. Off 11¼p at 274¾p, the shares look set to remain friendless.
My advice Avoid
Why There seems a good chance of a dividend cut
And finally . . .
This column suggested a week or so ago that signs of life were returning to the quoted corporate bonds market after a dearth of new issues since the spring. The low cost of borrowing means that companies are finding it easier and cheaper to take on bank debt rather than issue bonds. Now along comes Places for People, a provider of social housing, whose finance unit aims to raise a minimum of £50 million by means of a retail bond paying a coupon of 4.25 per cent. This is the third such bond the business has launched.
