The reaction in AstraZeneca’s share price to the news of a poor outcome for the latest trial for the company’s Brilinta heart drug is an instructive one. The shares were off by 2 or 3 per cent in early trading, on what is the second piece of bad news for Brilinta, supposedly one of the company’s standout drugs, this year. They ended off only 16p at £50.25 as analysts concluded it wasn’t too bad, after all.
Brilinta failed to do better than alternative treatments in trials for patients with peripheral artery disease. AstraZeneca has had to row back on earlier forecasts that the drug would notch up sales of $3.5 billion by 2023. This year Brilinta will achieve sales of $1 billion. The market still expects it to reach $2.1 billion for 2021, even if the company is making no such promises.
That $3.5 billion forecast, and a range of others, was behind the defence to the hostile approach for AstraZeneca from Pfizer in 2014. This suggested that total group sales would reach $45 billion by 2023 and all the indications are that this target is still achievable.
Meanwhile, AstraZeneca continues to refine its portfolio of treatments, emphasising the prospects for its stable of cancer drugs, several of which face development milestones over the next year or so. One, Tagrisso, which treats lung cancer, was recommended for use by NICE, the UK regulator, yesterday and in due course may be in routine use in the NHS.
Separately, AstraZeneca has decided to sell the rights to Toprol-XL, its beta-blocker heart drug, in the United States to Aralez Pharmaceuticals, the second disposal of a non-core treatment this week and coming a couple of months after the company agreed to sell its antibiotics business to Pfizer.
As I have suggested before, investors in pharma companies should not be distracted by contradictory news flow. The shares are among those that have benefited from the weakness of sterling after the Brexit vote. Investors should be aware that the company is emerging from trough years in terms of earnings and the prospects for those cancer compounds remain good.
AstraZeneca pays dividends in dollars and the shares, at present exchange rates, now yield 4.4 per cent. Not one to go short of, then.
My advice Buy
Why There will always be a mixed news flow from pharmaceuticals companies such as AstraZeneca, but the yield remains attractive
Secure Income Reit
Regular readers will know my fondness for property companies such as Primary Health Properties that buy assets with an assured income stream and recycle this as dividends to investors.
PHP is entirely involved in doctors’ surgeries and pharmacies, as is its rival Assura. Secure Income REIT (the name says it all) invests in a much wider range of assets, having recently agreed to buy a portfolio from Travelodge, the budget hotel operator, for £196 million. It also owns Alton Towers, Warwick Castle and Thorpe Park, the attractions operated by Merlin Entertainments. The company came to the market in mid-2014 and is managed by Prestbury Investments, the vehicle of Nick Leslau, the property veteran, which has a bit more than 15 per cent.
The Travelodge hotels were bought off-market at a 7 per cent initial yield. The deal is funded by a £140 million placing at 298.6p, pretty much the net asset value, which was heavily oversubscribed, more than £3 of institutional and private wealth funds chasing every pound on offer. In this market the attractions of such a share is clear enough: the deal will allow dividends to be raised further and the aim is to grow these by 6.5 per cent a year over the appreciable future.
For now, the shares, up 7½p at 310p, offer a forward yield of 4.5 per cent. Prestbury saw its holding dilute a touch as a consequence of the placing but is has good enough incentive. That yield is not exactly stellar, but the rate of growth is among the best on the market.
My advice Buy
Why Dividend growth looks set to continue
Greggs
Greggs shares have largely recovered from their fall after the referendum, a function of the general malaise in UK-focused stocks, and the latest trading update contains nothing that should concern investors. The company lifted like-for-like sales by 2.8 per cent in the 13 weeks to October 1 against some tough comparators last time, helped by the move towards more healthy eating and increased sales of breakfasts.
The days when Greggs could be seen as a simple baker are gone and the company prefers to be regarded as being in the fast-growing food-to-go market. It has had the benefit of deflation of basic commodities such as flour and sugar in the immediate past, but inflationary pressures are building again, about the only negative in the update. Against this, the company is investing in making itself more efficient and can continue to add on stores at a rate of about 70 a year, towards its present target of 2,000.
The cash is piling up, even if it looks too soon for a repetition of last year’s £20 million special dividend payment. Up 5p at £10.51, the shares sell on 18 times’ earnings, which does not suggest any immediate upside.
My advice Avoid
Why Shares look fully valued for now
And finally . . .
Bluefield Solar Income Fund is one of several dedicated vehicles that have come to the stock market in recent years to invest directly in green energy. The fund, which went back to the market in December to raise fresh cash, beat its earnings targets in the year to the end of June and has maintained the dividend. As ever with such funds, the main attraction is that assured dividend income. The shares are trading at a bit above the latest net asset value and the yield is a healthy 6.7 per cent.
