ii view: A Covid-19 boost and record high for AstraZeneca

One of only a few FTSE 100 gainers year-to-date, the drug group’s latest results did not disappoint. 

First-quarter results to 31 March 2020

• Revenue up 16% to $6.35 billion
• Core or adjusted earnings per share (EPS) up 17% to $1.05

Guidance:

• Financial guidance for FY 2020 is unchanged
• Total Revenue is expected to increase by a high single-digit to a low double-digit percentage
• Core EPS is expected to increase by a mid- to high-teens percentage

Chief executive Pascal Soriot said:

"Our focus ensured another quarter of strong growth across every therapy area and region. The new medicines performed extremely well, and our pipeline continued to deliver. Standouts included landmark news for Tagrisso, Farxiga and Koselugo, our latest oncology medicine. The progress made on all fronts provides confidence that we will, once again, meet our full-year commitments.

I could not be prouder of how the AstraZeneca team has responded to the challenges of Covid-19. We moved quickly to maintain continuity of care, contribute to society, and use our scientific expertise to fight the pandemic.”

ii round-up:

British drugs company AstraZeneca (LSE:AZN) reiterated its financial estimates for 2020 as quarterly profit topped City forecasts, aided by heightened demand amidst the Covid-19 pandemic. 

The Cambridge-based company, which has donated nine million face masks to healthcare workers globally, benefited from a move by hospitals to top-up their store cupboards and fight other conditions which can aid corona virus. 

Astra shares gained by around 1% following the results and are up over 8% year-to-date. This trails a near 15% improvement for fellow FTSE-100 constituent Hikma Pharmaceuticals (LSE:HIK), although beats a 5% drop from rival GlaxoSmithKline (LSE:GSK). 

Astra expects the stocking-up gains enjoyed to reverse over coming months. 

New medicine sales again performed well. All three treatment areas including oncology and cardiovascular enjoyed sales gains during the quarter, as did all of its geographical regions. Oncology or cancer related drug sales rose by 33% - sales in the Emerging Markets gained by 13%. 

Manufacturing sites in China have now returned to full capacity as the peak of Covid-19 is considered to have passed. 

Despite the virus pandemic, management does not expect material delays to clinical trials into 2020 and 2021.  

Second-quarter and first-half results are scheduled for the end of July. 

ii view:

AstraZeneca is a global, science-led biopharmaceutical company. It is focused on the discovery, development and commercialisation of prescription medicines. The group employs over 60,000 people in more than 100 countries. It is listed on the London, Stockholm and New York stock exchanges. 

For investors, excitement created by developed new medicines and growing sales in Emerging Markets has fuelled a re-rating of the shares. They now trade on a forward price/earnings (PE) ratio of around 25 compared to a 10-year average of less than 15 and a forward PE of below 15 at rival GlaxoSmithKline. 

As such, the dividend yield is now more reflective of growth, although arguably still attractive at just under 3% on a historical basis. Current Covid-19 gains aside, these latest results again appear to justify the heightened valuation, reflecting progress being made. 

Positives: 

• Oncology product sales account for 40% of total sales
• Emerging Markets its largest region at 36% of total sales, the US 33%

Negatives:

• Other medicine sales including those where patents have expired fell by 4%
• Dividend cover of only 1.4 times

The average rating of stock market analysts:

Buy