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AstraZeneca: Where Has All the Cash Gone?

Practical discussions about equity High-Yield Portfolios (HYP) for income
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ADrunkenMarcus
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AstraZeneca: Where Has All the Cash Gone?

#227345

Postby ADrunkenMarcus » June 6th, 2019, 7:05 am

Many people will hold AZN in their HYPs. They may be interested in this analysis, dealing with earnings, cashflow and debt trends - particularly during the past decade:

https://www.hardmanandco.com/wp-content ... e-2019.pdf

Best wishes

Mark.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227445

Postby miner1000 » June 6th, 2019, 11:50 am

Fascinating. So much so that I have sold half my holding in AZN. Will probably use the proceeds to buy more IMB. Miner

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Re: AstraZeneca: Where Has All the Cash Gone?

#227452

Postby MDW1954 » June 6th, 2019, 12:14 pm

It's very interesting. And the authorship is impressive. But despite all the disclosures at the end, I'm no nearer to knowing who paid for the research, and why.

MDW1954

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Re: AstraZeneca: Where Has All the Cash Gone?

#227464

Postby daveh » June 6th, 2019, 12:49 pm

MDW1954 wrote:It's very interesting. And the authorship is impressive. But despite all the disclosures at the end, I'm no nearer to knowing who paid for the research, and why.

MDW1954


And it appeared in Ivestegate just like an RNS announcement - I wonder why.

It is interesting research and I too am wondering if I should sell some or all as it suggests there might yet be a dividend cut in the not too distant future if cash flow doesn't pick up.

They compare AZN to GSK and I just looked at some metrics in HYPTUSS for the two companies and GSK is on a yield of 5.2% and PE of 14.3 compared to AZN on a yield of 3.6% and PE of 22.30. This suggests that AZN is overvalued compared to GSK. The PE may be even higher depending on which version of earning you use in the calculation - if I use the hardman figure for EPS converted back to pounds with todays share price the PE comes out at 36. So there is a lot of earnings improvement baked into the price.


The research doesn't seem to have harmed the share price as in my HYPTUSS the share price is up 1% since the last time I updated it a couple of days ago.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227489

Postby Gengulphus » June 6th, 2019, 2:13 pm

daveh wrote:And it appeared in Ivestegate just like an RNS announcement - I wonder why.

Not quite - it's got "EQS" against it where the vast majority of stuff on Investegate has "RNS". Hovering on the "EQS" brings up "supplier: EQS (Regulatory)" rather than the usual "supplier: Regulatory News Service (Regulatory)", and clicking on it brings up a list of other announcements supplied by EQS. EQS does seem to be a regulatory news service (IIRC there were around half a dozen of them besides RNS when I saw a list several years ago), used by a small proportion of companies, and most of its announcements have the standard sorts of headlines (such as "Total Voting Rights" and "Holding(s) in Company"), but it also has a number of these announcements made by "Hardman & Co Research" over the last year and a bit and using the EPIC of the researched company (to list them, you need to do a "Company" search for e.g. "Hardman" rather than an "EPIC" search). Distinctly unusual...

"Unusual" doesn't necessarily mean "wrong", of course, but it does raise the question of whether Hardman & Co Research are announcing these research reports with the companies' blessing and if not, whether they really ought to be masquerading as regulatory news about the company, or if so, what regulations the company thinks say it should be making them as regulatory announcements...

Gengulphus

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Re: AstraZeneca: Where Has All the Cash Gone?

#227495

Postby JoyofBrex8889 » June 6th, 2019, 2:30 pm

I have been saying this for some years: Core EPS render these big pharma companies uninvestable for me.

Good luck all holders, but when the accounts are questionably obfuscated by “core” measures I am out.

ADrunkenMarcus
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Re: AstraZeneca: Where Has All the Cash Gone?

#227636

Postby ADrunkenMarcus » June 6th, 2019, 11:57 pm

I reported my recent trimming of AZN here https://www.lemonfool.co.uk/viewtopic.php?f=56&t=5335&start=20#p223257, which had the effect of reducing the concentration of dividend income from this share. I have held since 1998 and the long term results have been satisfactory. However, recent trends in return on capital employed and operating margin reflect a business which is not doing as well as it was in the previous decade. AZN needs to urgently achieve the enhanced generation of free cash flow from operations which has been forecast and reduce debt levels.

In 2009, it was generating a ROCE of 31% and an operating margin of 35.2%; in 2018, it achieved 7.6% (less than its cost of capital, presumably) and 15.3% respectively.

ROCE:


Operating Margin:

Source: My own calculations using unadjusted figures from annual reports.

Best wishes

Mark.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227644

Postby TUK020 » June 7th, 2019, 7:07 am

At one level, I am wondering why this is a surprise to anyone.

For years it has been obvious that the patent cliff was causing a major drop off in AZN's earnings. They were using a significant dividend payout to keep their SP aloft until their promising pipeline can re-establish the earnings gusher.
This has caused them to bleed cash.
SP has been ramping over the last 5 years as the promised land comes closer...........
There may be a nasty reaction if they get any unpleasant surprises and/or delay in their much hailed pipeline.

I top sliced a major chunk about a year ago when the SP hit 6000, and am now underweight.

idpickering
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Re: AstraZeneca: Where Has All the Cash Gone?

#227647

Postby idpickering » June 7th, 2019, 7:30 am

TUK020 wrote:At one level, I am wondering why this is a surprise to anyone.

For years it has been obvious that the patent cliff was causing a major drop off in AZN's earnings. They were using a significant dividend payout to keep their SP aloft until their promising pipeline can re-establish the earnings gusher.
This has caused them to bleed cash.
SP has been ramping over the last 5 years as the promised land comes closer...........
There may be a nasty reaction if they get any unpleasant surprises and/or delay in their much hailed pipeline.

I top sliced a major chunk about a year ago when the SP hit 6000, and am now underweight.


Well said TUK020. I did the same as you, about the same time, that is selling a bit off the top. They are now technically underweight in my HYP, and sit alongside a full holding of GlaxoSmithKline in the sector. I have no intention of topping up my AZN holdings currently.

Ian.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227679

Postby 88V8 » June 7th, 2019, 9:52 am

I sold AZN long ago.

OH used to work at GSK, she started when they were Beecham and had built a very large holding which we have been steadily reducing. Neither GSK nor AZN has a covered divi, they are just a cut waiting to happen and if it were not for the sentimental link to GSK we would be right out.

Patent cliffs, NHS pressure on drugs costs, overly restrictive regs on drugs trials and the general anti climate around those 'dreadful' drugs companies that are keeping many of us alive or trying to.

V8

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Re: AstraZeneca: Where Has All the Cash Gone?

#227696

Postby Darka » June 7th, 2019, 10:19 am

I sold 2/3 of my AZN a few months ago, will be offloading the rest of them today.

I've been concerned about the cash flow for a while (and with GSK), and I suspect a dividend rebase will happen within the next 2 years.

I've made a good return on AZN, but not it's time to move the money to something off topic and getting better diversification and yield at the same time.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227714

Postby Bouleversee » June 7th, 2019, 11:06 am

FWIW, Deutsche Bank are recommending AZN with a target price of 6800 and I have read that some of AZN's new drugs have performed well in recent trials. I have two holdings, one in ISA and one not, and having read this thread am wondering whether I ought to be selling the non-ISA one at least. However, since it is up over 97% since purchase in June 2016, I shall need to look at the cgt situation in light of other disposals/takeovers, and, as you will have gathered, I hate parting with those which have done well for me, especially when they are producing a very good yield on my purchase price, though I know I should. The big question is where to put the money if I did sell. What is likely to do any better? There is nothing that appeals to me very much at the moment and I already have a large chunk of cash doing nothing in my ISA and rather less in my bank account though the latter does at least produce 1.5% interest.

It would be interesting to know whether whatever those who sold bought with the AZN proceeds did any better than AZN has done in the meantime. My own purchases in the past year or so haven't done well on the whole.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227719

Postby Bouleversee » June 7th, 2019, 11:14 am

Darka wrote:I sold 2/3 of my AZN a few months ago, will be offloading the rest of them today.

I've been concerned about the cash flow for a while (and with GSK), and I suspect a dividend rebase will happen within the next 2 years.

I've made a good return on AZN, but not it's time to move the money to something off topic and getting better diversification and yield at the same time.


Do, please, do a post on a board where your new purchase would be on-topic and let us know where that is. I'd be interested to know what you are planning to buy.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227732

Postby tjh290633 » June 7th, 2019, 11:39 am

Bouleversee wrote:It would be interesting to know whether whatever those who sold bought with the AZN proceeds did any better than AZN has done in the meantime. My own purchases in the past year or so haven't done well on the whole.

Where should I start, Lorna?

I trimmed AZN back in March 1997, when they along with LLOY had gone well overweight at 1846p. I bought some Hanson, at 321p, Imperial Tobacco at 421p and Energy Group at 532p. Energy group were taken over a year later at 840p, Hanson were sold out on take-over in 2007 at 1077p and IMT are still held as IMB at just over £20. IRR for Energy Group was 34.42%, for Hanson was 11.75% and for IMB has been 21.6%.

Next trimmed in 2008 at 2403p, and I see that the proceeds went into Cattles at 32.75p. Needless to say, that was not a clever move.

Trimmed again in 2014 at 4676p and the proceeds went into Tesco at 304p and Pearson at 1108p. Tesco stopped paying dividends soon after that, and Pearson cut theirs in 2018. Both have currently lower yields than AZN.

Last trimmed in November last year at 6252p, and the money went into BATS at 2701p and William Hill at 171p. BATS have increased their dividend, while WMH have reduced theirs slightly based on 50% of earnings. Currently both yield significantly more than AZN.

Curate's egg sort of results.

TJH

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Re: AstraZeneca: Where Has All the Cash Gone?

#227740

Postby scrumpyjack » June 7th, 2019, 11:56 am

I got out of Astra and Glaxo ages ago as, being an accountant, I really couldn't stomach their ludicrous accounting policies and the con of 'Core' earnings per share.

Analysts may be fooled by this but I took the view, and still do, that reality will eventually catch up. I just wasn't comfortable holding shares in companies that paid large dividends each year that they had not earned.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227799

Postby Bouleversee » June 7th, 2019, 3:38 pm

Many thanks, TJH. How you can pull all that out of the air "just like that" is beyond me. What a hive of activity. What is the bottom line on it all, i.e. would your capital be more or less now if you had done nothing (without knowing how long the trimmings were, it's impossible to work that out) and when you say the yield is higher/lower are you comparing the dividend cash you would have received if the original holding had been retained with what you are currently getting or the quoted percentage yields on current prices? I am receiving almost twice the quoted % yield as I bought for almost half the current price. I presume you must end up with a higher total result or you wouldn't go on doing it, but it seems a lot of effort if one has a large no. of holdings.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227822

Postby tjh290633 » June 7th, 2019, 5:25 pm

Bouleversee wrote:Many thanks, TJH. How you can pull all that out of the air "just like that" is beyond me. What a hive of activity. What is the bottom line on it all, i.e. would your capital be more or less now if you had done nothing (without knowing how long the trimmings were, it's impossible to work that out) and when you say the yield is higher/lower are you comparing the dividend cash you would have received if the original holding had been retained with what you are currently getting or the quoted percentage yields on current prices? I am receiving almost twice the quoted % yield as I bought for almost half the current price. I presume you must end up with a higher total result or you wouldn't go on doing it, but it seems a lot of effort if one has a large no. of holdings.


Fortunately it is all in my spreadsheets. As regards my capital, there were also topping up actions in between. In fact I topped up almost the same number of shares between the trimming in 1997 and 2008, in 2007 in fact. Then I topped up 3 times in between the 2008 and the 2014 trimming, and once more before the final trimming of 2018, in 2016. The resultis that I now have slightly fewer shares than I did before the very first trimming. Had I done nothing along the way, my IRR would have been 9.1% instead of 15.8%. Obviously I wrote off Cattles. lost a bit on Tesco and about the same on Pearson. William Hill are down a bit and BATS are up.

I did look at the effect on income on some transactions around 2002. One resulted in 5% extra income on that tranche of capital, another one 29% reduction and a further one 52% more incomeup to about 2007. Usually the effect is to jack up the income per income unit. It's too complicated to work out all the data, because of special dividends and other factors.

TJH

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Re: AstraZeneca: Where Has All the Cash Gone?

#227828

Postby Bouleversee » June 7th, 2019, 5:52 pm

Thanks, Terry. Worth the effort for you, then, but I think I know what would happen if I tried it, in between caring for 5 lawns and 14 large flower beds and everything else.

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Re: AstraZeneca: Where Has All the Cash Gone?

#227835

Postby Lootman » June 7th, 2019, 6:13 pm

Bouleversee wrote:Do, please, do a post on a board where your new purchase would be on-topic and let us know where that is. I'd be interested to know what you are planning to buy.

You were not asking me but the problem as I see it is exactly what you allude to - I cannot honestly answer your question without going off topic for this board.

But the reason for that may be on topic for this board, i.e. that the usual suspect HY shares that have sustained this community for a decade or two are failing their constituents. I have watched whilst first financials, then retail, then support services, utilities and tobacco, now pharma and other HY sectors have serially disappointed.

I looked at my account today where I hold HY-like shares and the only real winners in capital terms were Diageo and Unilever, and a few others like Compass and Smith & Nephew. Almost every other share has, despite spitting out some self-disgorging dividends, evaporated capital.

So yes, I offloaded Glaxo and Astra recently. But I dumped the proceeds into a S&P 500 index fund, where at least I might find some growth. If HY investing had run its course, how would anyone here know?

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Re: AstraZeneca: Where Has All the Cash Gone?

#227852

Postby ADrunkenMarcus » June 7th, 2019, 8:21 pm

Lootman wrote:
Bouleversee wrote:Do, please, do a post on a board where your new purchase would be on-topic and let us know where that is. I'd be interested to know what you are planning to buy.

... I cannot honestly answer your question without going off topic for this board.


I have the same issue, although I did document my alternative investment in the post I linked to earlier. I'm pleased to report it's up 15% in that time, more through luck than judgement!

Best wishes

Mark.


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