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AstraZeneca and GlaxoSmithKline shares still a good investment, says Berenberg

AstraZeneca PLC and GlaxoSmithKline PLC were among the top picks for Berenberg as it initiated coverage of the global large pharma sector.

The US presidential election on 3 November is going to be closely watched by pharma companies and investors alike, but the analysts, led by Luisa Hector and Kerry Holford, do not expect US drug pricing reform pilot schemes until 2022 at the earliest.

“However, whether the next president is Trump or Biden, we expect noise around pricing reforms to remain a near-term issue.

“Pharma has the opportunity to offset some of this rhetoric if COVID-19 therapeutics and vaccines are successful in the coming months.”

The analysts forecast 6% compound annual growth rate for the sectors sales over the period to 2024 and a CAGR of 10% for earnings, which translates a cumulative US$1.1trn of cash flow, and that is before incorporating the significant expected pipeline newsflow on cancer and autoimmune diseases in the coming year.

The sector is forecast to return 46% of operating cash flow in the form of dividends and 10% in share buybacks.

Coronavirus and the potential for the pharma industry to deliver therapeutic solutions moves to the forefront of investors minds is “a short-lived potential benefit for the sector” and the analysts said they were not including any COVID-19 therapeutic and vaccine sales or profits in their base-case forecasts.

“At this stage, there remain too many uncertainties: efficacy and safety data, dosing schedule, price, capacity, demand.”

READ: Vaccines remain the key as coronavirus second wave anxiety mounts among investors


In terms of other trends, the next 12-18 months are expect to see the continuation towards pure-play pharma, with Pfizer, Merck and GlaxoSmithKline all shedding non-pharma and non-core divisions.

AstraZeneca is one of four companies rated buy, with the Anglo-Swedish group given a 10,500p price target, offering around 19% upside.

“The innovative, rejuvenated portfolio at AstraZeneca will drive double-digit sales and EPS growth. As profitability improves, so does the cash position. We forecast that the dividend will finally be covered from 2021. Management will have more cash at its disposal to invest in R&D, supporting even greater investment in AstraZenecas wealth of pipeline assets.”

There are also many near-term pipeline catalysts which could unlock further value and the analysts believe a premium multiple is warranted.

As for GSK, Berenberg forecasts growth in line with peers and see pipeline upside with a large pipeline emerging.

“At the height of lockdown, vaccine demand slumped. However, prescription trends have bounced back since June and, while 2020 guidance for Shingrix is challenging, we have no concerns with regard to future growth.”

The analysts anticipate solid mid-single-digit sales growth from all three divisions, and margin expansion to result in mid- to high single digit earnings growth foRead More – Source

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