Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

THE vaccine announcements in November 2020 were the start of a long road back to normality. They also super-charged global stock markets, which rose in anticipation of an economic revival. However, the sector that made it all possible – pharmaceuticals – has lagged and the UK’s AstraZeneca has been particularly lacklustre.

The MSCI World index is up 29% in the year to 5 November.1 In contrast, AstraZeneca, one of the leading lights of the vaccine rollout has seen its share price rise just 11.7%. 2 Yet a number of leading fund managers are backing the company, suggesting its next round of results – due on Friday - could be the start of better times for the pharma giant.

There are a number of reasons for AstraZeneca’s relative weakness. The market’s attention has been elsewhere. The most obvious beneficiaries of the reopening of economies have been those areas that suffered most during the privations of the pandemic - construction groups such as Galliford Try, oil companies such as Tullow Oil, sandwich king Greggs and travel operator FirstGroup. Amid the excitement over recovery, solid defensives such as AstraZeneca have been left behind.

The pharmaceuticals group has also been held back by the market’s recent tendency to focus on macroeconomic issues, rather than the reality of a company’s performance. AstraZeneca’s share price has been buffeted by news around its high profile vaccine – including its high profile spats with the EU - rather than the realities of its business: its growing oncology franchise, its divestment of legacy drugs to fund new innovation, or its box-fresh RNA deal with VaxEquity.

Yet these areas are likely to be a far more important part of its long-term performance. The vaccine has never been big business for the company, with CEO Pascal Soriot promising not to profit from it during the pandemic. The latest set of results may make a decisive break from the past, demonstrating clearly that AstraZeneca has more strings to its bow.

In the second quarter, the group reported a 31% increase in sales growth to $8.22bn.3 Analysts are expecting sales growth of 35% for the third quarter.4 The group may also start to feel the impact of the $39bn acquisition of US firm rare diseases specialist Alexion, finalised in July, which it expects to deliver “double-digit revenue growth through 2025”.5

It is a top 10 holding for a number of the UK funds on Fidelity’s Select 50 list, including Artemis UK Select and Franklin UK Equity Income. More broadly, it is becoming a more important source of dividends for UK investors. It is now the tenth largest dividend payer in the UK market.6

AstraZeneca has undertaken a multi-year restructuring process under the well-respected Soriot. It remains only part way through, but the regeneration is increasingly reflected in its earnings. Investors need to look at AstraZeneca in spite of its vaccine prowess, rather than because of it.

More on AstraZeneca

Source:

1.  https://www.msci.com/end-of-day-data-search
2.  https://finance.yahoo.com/quote/AZN/
3.  https://finance.yahoo.com/quote/AZN/analysis/
4.  https://www.europeanpharmaceuticalreview.com/news/159572/astrazeneca-reveals-15-54-billion-in-revenues-in-h1-2021/
5.  https://www.astrazeneca.com/media-centre/press-releases/2020/astrazeneca-to-acquire-alexion.html
6.  https://www.linkgroup.eu/media/1644/link-group-q3-dividend-monitor.pdf

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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