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Astrazeneca - prospects, and worthiness of a new addition

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TheMotorcycleBoy
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Astrazeneca - prospects, and worthiness of a new addition

#192605

Postby TheMotorcycleBoy » January 11th, 2019, 6:48 am

Hi all,

I have just started looking at Astrazeneca (AZN) as a possible candidate for an addition to Mel and I's portfolio. Have read the first 15 or so pages of their 2017 AR (the latest one available it seems). Out of all the ARs I looked at lately it is definitely one of the most interesting. In addition to 3 main medicinal areas:

* Oncology
* Respiratory
* Cardiovascular

upon skim reading up to pg 60 I have also uncovered their other interesting areas of research: autoimmunity, neuroscience and more; in which they are involved. Yes, it's clear that they are presenting themselves as a science led organisation, have many drugs in their portfolio, and have global reach. That aside, the report, and public info. does not hide the fact that revenues have been falling (why?) at least since 2015.

I have picked up a few actual sales figures from AZN page 135 of this and some estimates from 4-traders:


One of the things that I'm trying to get my head around is how 4-traders have obtained their estimates, and whether "the return to growth" goal set out in AR 2017 is happening, and whether it's sustainable.

I've just grabbed the latest results summary apparently issued this month (which I quote from pg 10 "product sales reached the inflection point" - good news, if it's true), and I'm not entirely clear on how to interpret them (why don't they state explicitly the exact timeframe in which sales occurred? Or perhaps it is implied?). So looking at the latest results on page 16, I can see:

YTD 2018 | Q3 2018
15673 | 5340

So how are we to turn the above latest figures, into a year's full figures indicative of growth? Firstly I assume I can multiply 5340 by 4 = 21360. That's short of the 4-traders estimates, but is an improvement on 2017 FY. Or do I assume the YTD 2018 figure means Q1,Q2,Q3, so multiply by 1.33 gives = 20845. Which also indicates a slight improvement......but is my logic well founded?

So my first question is, are AZN on track to recovery previous sales levels, and more importantly do my estimates from the latest results immediately above suggest that?

More to come, but please post any ideas, comments etc. about this company,
thanks Matt

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192608

Postby TheMotorcycleBoy » January 11th, 2019, 6:58 am

Some very rough public valuation type info:



http://financials.morningstar.com/valua ... ture=en-US
https://www.marketscreener.com/ASTRAZEN ... inancials/

PE makes them seem quite pricey, but the Enterprise Value multiple suggests a more reasonable valuation.

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192609

Postby TheMotorcycleBoy » January 11th, 2019, 7:16 am

A few things things before I get on with day job:

Page 4 of AR 2017, says At the same time, the Board reaffirmed its continued commitment to our progressive dividend policy.

But (from stockopedia

However dividend max suggests the dividend is returning on upward path. Can any AZN holders here corrobate?

Other potential risks or just questions I've picked up from AR 2017:

page 5: We made encouraging progress in all main therapy areas and delivered strong growth in China, our second largest market.
Is China economy health a risk to AZN?

page 11: In Europe, they include how the UK will work with the EU regulatory system following its exit from the EU, and the relocation of the EMA from London to Amsterdam in the Netherlands (and the likely disruption this will cause to regulatory processes).
Risk?

page 12: Changes to the Affordable Care Act (ACA) and ongoing efforts to reform the healthcare system continue to create uncertainty in the market. While policymakers in the US have advocated for repeal and replacement of the ACA, full repeal appears unlikely. Thus, the administration has taken steps to significantly change ACA regulations, including repealing the individual mandate provision of the ACA which requires citizens to have insurance or pay a penalty. Changes to ACA regulations may have downstream
Risk?

On the plus Pascal Soriot has been CEO since 2012 and Marc Dunoyer CFO since 2013 - I'm currently assuming, therefore, some stability and agreement in the upper echelons.

better go,
Matt

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192625

Postby jackdaww » January 11th, 2019, 8:21 am

metrics plus points -- yield / cashgen / return on capital / margins / pricing power / PEG /

cons -- dividend cover / debt

possibly more of a gamble than average .

i hold .

:idea:

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192645

Postby 77ss » January 11th, 2019, 9:00 am

TheMotorcycleBoy wrote:....
However dividend max suggests the dividend is returning on upward path. Can any AZN holders here corrobate?
......


AZN reports in US$ . There has been no change in the $ dividend since 2015 - all apparent changes are down to exchange rate movements. A factor you need to bear in mind for a number of large companies, which report in foreign currencies.

I bought AZN (and ULVR) in January 2011. Both have done fairly well for me, with similar underlying (ie untinkered) XIRRs of just under 14%. Unlike ap8889, I do not see AZN/ULVR as an either/or choice. Diversification has its own value.

Worth noting that AZN and GSK both turned in over 10% capital gains in the 2018 calendar year - when the FT100 was down by over 10%. My personal portfolio woud have done rather worse without these two.

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192664

Postby Urbandreamer » January 11th, 2019, 10:29 am

I too hold both AZK and GSK, though I reduced my holding in GSK and am considering selling.

As said Phama companies are quite relient on the returns of drugs they hold patents for. Such patents run out and both were looking at a cliff edge of returns. AZK invested a LOT in research in the hope of rebuilding their "pipeline", while GSK intended to ramp up its none patent healthcare business. Rescenty GSK has reversed that stance and formed joint ventures or bought smaller companies for their patents.

As said, both companies face headwinds, however I for one would not argue that their future looks poor.

China is a expanding new market for example.

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192718

Postby TheMotorcycleBoy » January 11th, 2019, 1:06 pm

Thank you very much for the opinions and comments so far. Alas some quite differing views. I have to say that in my very limited read of the AZN report, I did process the diagram laying out the "Research pipeline 5-15 years" and the "Launch pipeline 5-15 years" and then a period of "exclusivity" where only they can sell the product and after the exclusivity period is up anyone can sell similar compounds (w/o the upfront costs). (However do the aftermarket firms have to pay a licence back to the original designer?) So these R&D firms must shoulder a lot of costs in the meantime.

Am I right in thinking that the reason for AZNs fall in revenue from 2015-2017 is, generally, due to exclusivity deals expiring on some of their products, lowering the sales volumes and unit prices?

Urbandreamer wrote:AZN invested a LOT in research in the hope of rebuilding their "pipeline", while GSK intended to ramp up its none patent healthcare business. Rescenty GSK has reversed that stance and formed joint ventures or bought smaller companies for their patents.

Yes your first point being the "return to growth" message in AR17.

And re. your second point, I did read in IC something about GSKs joint ventures with Pfizer. I find GSK a very odd co. to analyse personally. As ap8889 mentioned I spotted a lot of weird stuff when I looked at their accounts. I couldn't figure where they got all their dividend cash IIRC. I also can't understand what Emma Walmsley is doing there exactly. It looks as if, by a process of M&A and joint venture (with Pf) she wants to create 2 companies......this is what I think I understand by the plan:

1. The new firm will sell the over the counter products (nicorette, sensodyne etc.) i.e. more the health care stuff, extracted from M&A of Novartis
2. The other firm will be GSK of the future will be classic bio-pharmaceutical, moving research and new pipeline with bits acquired from Tesaro.

(incidentally out of 1. and 2. which is the highest margin business?)

I have to say I much favour AZN. The CEO Pascal S. has a medicine degree, where as GSKs Emma W. has a classical education. So I'm (arrogantly) thinking that AZN is much more organic a Pharma since it is ultimately led by a scientist, whereas GSK an acquisition-based one. I prefer the former model.

Urbandreamer wrote:As said, both companies face headwinds, however I for one would not argue that their future looks poor.

China is a expanding new market for example.

Yes, and the business themselves have a element of risk. And the crystal ball says "ageing growing populations=more demand", and "more regulation/Future asian competition?=lower margins".

Interesting views folks,
thanks Matt

PS I hope the post reads ok - quickly penned in middle of lunch hour!

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192731

Postby TheMotorcycleBoy » January 11th, 2019, 1:49 pm


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Re: Astrazeneca - prospects, and worthiness of a new addition

#192741

Postby Urbandreamer » January 11th, 2019, 2:12 pm

TheMotorcycleBoy wrote:Am I right in thinking that the reason for AZNs fall in revenue from 2015-2017 is, generally, due to exclusivity deals expiring on some of their products, lowering the sales volumes and unit prices?


Well that's my belief.

TheMotorcycleBoy wrote:Yes your first point being the "return to growth" message in AR17.

And re. your second point, I did read in IC something about GSKs joint ventures with Pfizer. I find GSK a very odd co. to analyse personally. As ap8889 mentioned I spotted a lot of weird stuff when I looked at their accounts. I couldn't figure where they got all their dividend cash IIRC. I also can't understand what Emma Walmsley is doing there exactly. It looks as if, by a process of M&A and joint venture (with Pf) she wants to create 2 companies......this is what I think I understand by the plan:

1. The new firm will sell the over the counter products (nicorette, sensodyne etc.) i.e. more the health care stuff, extracted from M&A of Novartis
2. The other firm will be GSK of the future will be classic bio-pharmaceutical, moving research and new pipeline with bits acquired from Tesaro.

(incidentally out of 1. and 2. which is the highest margin business?)


Does it really matter? As ap8889 also points out, good returns can be made on low margin stuff like tea bags and soap. You just have to sell a lot of it, and yes I also hold Unilever (who probably saved untold millions of lives with Sunlight soap).

I have no quible with Emma Walmsley's background. My concerns with respect to GSK is that I'm not convinced that they HAVE a plan and am concerned that they may just vacilate. I've held AZK since 2011 and feel pleased with the returns over that time.

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192748

Postby TheMotorcycleBoy » January 11th, 2019, 2:32 pm

Urbandreamer wrote:
TheMotorcycleBoy wrote:Yes your first point being the "return to growth" message in AR17.

And re. your second point, I did read in IC something about GSKs joint ventures with Pfizer. I find GSK a very odd co. to analyse personally. As ap8889 mentioned I spotted a lot of weird stuff when I looked at their accounts. I couldn't figure where they got all their dividend cash IIRC. I also can't understand what Emma Walmsley is doing there exactly. It looks as if, by a process of M&A and joint venture (with Pf) she wants to create 2 companies......this is what I think I understand by the plan:

1. The new firm will sell the over the counter products (nicorette, sensodyne etc.) i.e. more the health care stuff, extracted from M&A of Novartis
2. The other firm will be GSK of the future will be classic bio-pharmaceutical, moving research and new pipeline with bits acquired from Tesaro.

(incidentally out of 1. and 2. which is the highest margin business?)


Does it really matter?

It probably doesn't matter - I'm just genuinely interested. I.e. which of those 2 business, in general, is typically the higher margin business. Perhaps it's 1. because they don't need lose so much on the R&D expense....perhaps it's 2. since cancer/anti-HIV drugs sell for more $$$. I don't know personally - but I'm curious, i.e. in furthering my education as an investor.

Urbandreamer wrote:I have no quible with Emma Walmsley's background. My concerns with respect to GSK is that I'm not convinced that they HAVE a plan and am concerned that they may just vacilate. I've held AZK since 2011 and feel pleased with the returns over that time.

Indeed Classics and Language studies are very interesting. But regards leading a pharma firm, if I were an employee I'd certainly rather by led by a Scientist that's all. I wasn't meaning to sound snooty about it. Just trying to rationalise out AZN and GSK which is more likely to be able to execute future drug pipelines.

But regardless of the above - many thanks for assistance toward my understanding of (primarily) Astrazeneca.

Matt

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192766

Postby Howard » January 11th, 2019, 3:06 pm

You might be interested to read Terry Smith's comments on AstraZeneca.

https://www.fundsmith.co.uk/news/articl ... like-tesco

Terry's comments on their accounting practices caused me to sell my holding. Partly because as an older investor with a mature portfolio it is always helpful to receive a clear indication of a good time to sell a share, especially when the market is buoyant. Time will tell whether TS's opinion was worth acting upon - in the short term I missed some good dividends and a further rally in the price! And i can't remember what I did with the proceeds. :D

regards

Howard

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192819

Postby TheMotorcycleBoy » January 11th, 2019, 5:21 pm

Howard wrote:You might be interested to read Terry Smith's comments on AstraZeneca.

https://www.fundsmith.co.uk/news/articl ... like-tesco

Terry's comments on their accounting practices caused me to sell my holding. Partly because as an older investor with a mature portfolio it is always helpful to receive a clear indication of a good time to sell a share, especially when the market is buoyant. Time will tell whether TS's opinion was worth acting upon - in the short term I missed some good dividends and a further rally in the price! And i can't remember what I did with the proceeds. :D

regards

Howard

Howard - many thanks, this is excellent stuff. I've quickly at your link, and I'll read TSs link why bother cooking the books in a sec, and reminding me to look at buying his book Accounting for Growth.

You know, I think I've been successfully unsold by you folks, in less than 12 hours!! AZN's technologies may be scientifically awesome, but I'm now thinking there's little point in pursuing diversity by lobbing a Pharma at the foli, unless they are cheap......and for some bizarre reason (?) they ain't.

I just received a PM from a LF a bit earlier, it seems that AZN is not covering it's divi. Starting a position with PE > 30, and uncovered div. doesn't seem a wise move.

Hmm... perhaps I revisit them later....but maybe for now, I should walk on by..

cheers Matt

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192893

Postby 77ss » January 11th, 2019, 9:44 pm

Urbandreamer wrote:I too hold both AZK and GSK, though I reduced my holding in GSK and am considering selling......


I am interested in your rationale here. I have AZN, GSK and WWH (to reach other parts of the healthcare universe) - a total of about 9.5% of my holdings. All three have delivered over the years, but I regularly top-slice if any of the holdings climbs to about 3.5%, as I don't care to be too overweight.

As I see it, GSK has become significantly more interesting of late.

At the time of the Novartis deal (2015), I said that it looked as though GSK was laying the groundwork for separation of the OTC business. Ignore what directors say - look at what they do. Not necessarily as a set plan - but certainly as option - war-gaming if you will.

The recent deal with Pfizer makes separation look even more probable. The timescale is of course uncertain. Some have repeatedly said that GSK is worth less than the sum of its parts. If they are right - and demergers have often unlocked value - then isn't GSK well worth hanging on to?

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192931

Postby Urbandreamer » January 12th, 2019, 7:33 am

77ss wrote:
Urbandreamer wrote:I too hold both AZK and GSK, though I reduced my holding in GSK and am considering selling......


I am interested in your rationale here.


I don't dispute your views on GSK, however they are not my views.

I didn't go into great detail, but I had thought that I was clear about my discomfort with the actions of its managment. There are arguments for spltting companies that have different businesses. There are also diversification arguments that could be made by the managment for conglomerating different businesses. Over the counter drugs and consumer healthcare is big business, as is new and radical drugs.

When I bought GSK I was not buying a consumer healthcare business nor was I buying a company whoes parts were worth more than the whole. It is of course natural that over time companies grow, evolve or change their business model, but when they do I take a view upon what they are doing and what their managments vision for the future is. I am uncomfortable that I don't know what that is in this case. You may feel that their actions clearly indicate their intentions, but the managment haven't communicated those intentions to their owners. They could obviously do so as they are required to provide a report every year. Is the reason that they are hiding it from their owners, or simply that the "plan" isn't one that they have?

If you add in others concers about their financial accounts then there is pleanty of reasons to at least consider selling.

Regarding the healthcare universe I currently hold AZK,GSK and IBT totaling 8.9% of my holdings, but GSK is only 1.66%. I tend to top slice holdings when they get to 6-7% as I like a concentraited portfolio.

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Re: Astrazeneca - prospects, and worthiness of a new addition

#192948

Postby 77ss » January 12th, 2019, 9:08 am

Urbandreamer wrote:
77ss wrote:
Urbandreamer wrote:I too hold both AZK and GSK, though I reduced my holding in GSK and am considering selling......


I am interested in your rationale here.


I don't dispute your views on GSK, however they are not my views.

I didn't go into great detail, but I had thought that I was clear about my discomfort with the actions of its managment. There are arguments for spltting companies that have different businesses. There are also diversification arguments that could be made by the managment for conglomerating different businesses. Over the counter drugs and consumer healthcare is big business, as is new and radical drugs.

When I bought GSK I was not buying a consumer healthcare business nor was I buying a company whoes parts were worth more than the whole. It is of course natural that over time companies grow, evolve or change their business model, but when they do I take a view upon what they are doing and what their managments vision for the future is. I am uncomfortable that I don't know what that is in this case. You may feel that their actions clearly indicate their intentions, but the managment haven't communicated those intentions to their owners. They could obviously do so as they are required to provide a report every year. Is the reason that they are hiding it from their owners, or simply that the "plan" isn't one that they have?

If you add in others concers about their financial accounts then there is pleanty of reasons to at least consider selling.

Regarding the healthcare universe I currently hold AZK,GSK and IBT totaling 8.9% of my holdings, but GSK is only 1.66%. I tend to top slice holdings when they get to 6-7% as I like a concentraited portfolio.


Interesting. We clearly have come at GSK in different ways. I never bought GSK as a concious investment decision, but acquired them (or a predecessor) some 30 years ago as a consequence of my employment. By the time I started taking an active interest, the holding had grown nicely and I liked the OTC part of the business, so left well enough alone - other than topping up to bring it up to full weight (about 3% for me). If I only had 1.66%, I would be tempted to double or quit now. A you say, there are clearly reasons to consider selling.

As for the plans, I revisited the Pfizer deal RNS. I had forgotten exactly how explicit the demerger statement was:

Within 3 years of the closing of the transaction, GSK intends to separate the Joint Venture via a demerger of its equity interest and a listing of GSK Consumer Healthcare on the UK equity market.

https://www.investegate.co.uk/glaxosmit ... 00039434K/

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Re: Astrazeneca - prospects, and worthiness of a new addition

#193022

Postby TheMotorcycleBoy » January 12th, 2019, 3:09 pm

77ss wrote:Some have repeatedly said that GSK is worth less than the sum of its parts. If they are right - and demergers have often unlocked value - then isn't GSK well worth hanging on to?

Hi 77ss

Help me out as a newbie here... So for a holder in GSK (as an example, but I guess it could be any firm partaking in a similar demerger), what exactly happens regarding their stock-holding? My guess is your holding is split two ways into two new holdings one for CompanyA and one for CompanyB, where the exact amount of holding you acquire in each is proportionate to the relative values which GSK assign to the new units. Is that about right?

thanks Matt

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Re: Astrazeneca - prospects, and worthiness of a new addition

#193127

Postby 77ss » January 13th, 2019, 12:01 am

TheMotorcycleBoy wrote:
77ss wrote:Some have repeatedly said that GSK is worth less than the sum of its parts. If they are right - and demergers have often unlocked value - then isn't GSK well worth hanging on to?

Hi 77ss

Help me out as a newbie here... So for a holder in GSK (as an example, but I guess it could be any firm partaking in a similar demerger), what exactly happens regarding their stock-holding? My guess is your holding is split two ways into two new holdings one for CompanyA and one for CompanyB, where the exact amount of holding you acquire in each is proportionate to the relative values which GSK assign to the new units. Is that about right?

thanks Matt


That is exactly what has happened to me in the past; the closest example perhaps was PFGs spin-off of IPF (its international division).
Every 2 'old' PFG shares became 1 'new' PFG share and 2 IPF shares. More recently, RB and BLT made minor spin-offs. RB's followed the same sort of pattern. I don't really understand how the BLT split worked - my records tell me that I received S32 shares 'as a dividend'. The details don't really matter if you hold in a tax shelter, but they can be important (CGT) outside a tax shelter.

No guarantees though - there may be other methods of effecting a demerger. Would an IPO count?

How have the spin-offs fared? IPF did well and I sold, 3 years after the split, for a 50% gain. It has since suffered - but that is another story - and somebody else's! S32 plunged at first, but recovered nicely and I sold 18 months later for a 35% gain. Too early, but it was only a minor holding. I believe some have done well with it. Checkout the other boards.

I haven't tracked the RB spin-off (INDV), as I sold it almost immediately (not wishing to complicate my life with a trivial holding - and, I felt, a risky one).

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Re: Astrazeneca - prospects, and worthiness of a new addition

#193152

Postby Urbandreamer » January 13th, 2019, 8:23 am

77ss wrote:No guarantees though - there may be other methods of effecting a demerger. Would an IPO count?


More often the new entity, while a viable business, can't support the expense of a listing. In such cases the value of the business, as opined by its new owners, is returned to the share holders of its parent.

Alternatively such aspect of a business can be sold to a competitor, when the parent wishes to leave that field. Obviouse examples (I hope*) are the likes of Lucosade and Horlicks. Again the value recieved is often returned to the share holders, unless the managment have a better use for the funds.

*Both formaly owned by GSK.


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