Stock of the day 27/07/2015 – GlaxoSmithKline PLC

The UK takes its turn in the earnings season spotlight this week, including the second quarter results of the country’s biggest of big pharmas: GlaxoSmithKline.

The company will be hoping its Q2 results can reverse what has become a tough couple of months. Glaxo opened the year at £13.85 after a rocky second half of 2014, and the first 4 months of 2015 saw a big correct to this price, with the stock reaching £16.42 by the middle of April. However, flash forward to now and Glaxo has slipped all the way back to a current trading price of £13.34 (IT-Finance.com, 27/07/2015). So what has put Glaxo on this proverbial rollercoaster ride?


(Source: IT-Finance.com 27/07/2015)

In February Glaxo ably navigated a tricky set of fourth quarter figures, ones that saw a 49% fall in profits to £3.6 billion for 2014 countered by confidence it could overcome its Advair problems, a proposal to spin-off its very successful HIV business ViiV Healthcare and a better than expected dividend. This put the company on its way to those April highs, something in no doubt helped by the March announcement of the Novartis asset-swap deal completion, something that gave Glaxo a net post-tax profit of $7.8 billion, $4 billion of which would be returned to investors.

So that’s the rise; what about the fall? Mid-April saw Glaxo have to recall its popular four-in-one flu vaccine due to the fact its effectiveness can decline over time; May then brought with it severe pre-UK election jitters, as well as first quarter report that appeared to undo much of the good work produced by the fourth quarter results back in February. The company announced its annual dividend is to be suspended at 80p for the next 3 years, it changed that juicy £4 billion buyback to a much less impressive £1 billion, AND perhaps most damningly, decided to abandon its plans to float ViiV Healthcare. The lone bright spot was a 1% increase in first quarter sales to £5.6 billion, the impact of which was dulled by a 14% fall in core operating profit to £1.3 billion alongside warnings that this trend would only worsen as the year went on.

Since then Glaxo hasn’t managed to stall its losses, even with the odd bit of good news here and there. The company just had the world’s first malaria vaccine approved from the EU, whilst ViiV Healthcare has just signed a deal with Desano Pharmaceuticals to manufacture the HIV drug dolutegravir for China. The progress of ViiV Healthcare going forwards, despite the investor disappointment over the cancelled floatation plans, could be one of Glaxo’s key strengths in the next few years.

Investors will also be desperate to hear the company’s further plans to deal with the continually damaging effects of the Advair patent loss, a gaping hole in the Glaxo books that is going to take a lot to fill. The company is expected to post £5.8 billion in sales, lower than previously forecast, alongside earnings per share of 16.5p. GlaxoSmithKline has a consensus rating of ‘hold’ with an average target price of £15.26.

Monday’s stock news:

Following that 8 year one-day record plunge on the Chinese markets, and the subsequent commodity sell-off, oil and mining stocks yet again make up the bulk of the losers pile, with Lonmin (down nearly 10%), Evraz (down 8%), Vedanta Resources (down 6.5%) and Premier Oil (down 5%) among the worst hit. Of course, the heaviest weights for the FTSE are BP (which reports its Q2 result tomorrow), Shell (reporting on Thursday) and Rio Tinto, which all slid by 1-2%.

On the other side of the loss/gain divide sits the perpetually speculated about and apparent belle of the gambling ball, Bwin.Party Digital. Despite accepting a £898 million bid from 888 Holdings earlier in July, GVC Holdings aren’t willing to give up without a fight, and are now aiming for a £1 billion bid to get their hands on the online betting brand. Of course (and as long as it doesn’t blow up in Bwin’s face) such talk is cat-nip for investors, who pushed the company over 2% higher to £1.11, the level Bwin reached when speculation first arose back in May.