GlaxoSmithKline, the UK's biggest drug maker and the world number two, does not normally have trouble standing out from its rivals. And yet, on a crowded day of corporate news yesterday, its half-year results showed none of the explosive sales growth that enabled AstraZeneca and Shire Pharmaceuticals to blow away market forecasts. GSK beat forecasts and had good news about its pipeline of new drugs, but at one point it looked like the shares might even go down.
That wouldn't have been fair, and we are not just saying that because GSK is one of The Independent's tips for 2005. Sales of its biggest drugs are still motoring ahead. Advair, for asthma and other chronic lung problems, Avandia for diabetes and Lamictal for epilepsy and bipolar disorder, all managed better than expected sales growth.
Even Paxil, the anti-depressant that had to be taken off the market for a few months because of problems at a manufacturing plant in Puerto Rico, was showing signs of rebounding by the end of the period under review.
So the shares responded in the end and the company is now looking conservative in its forecast of low double-digit percentage earnings growth this year.
That's the short-term outlook covered. The long-term outlook is why we tipped GSK. It has simply the best pipeline of future drugs in the industry, with more than 40 drugs in the make-or-break second phase of human trials. We have had data on 11 of them so far this year, and an exciting new HIV treatment has moved on to the last phase of trials, while other ashtma and antibiotic drugs also made progress. There were inevitable disappointments - yesterday's was that two new-generation diabetes drugs will need more work - but investors can be assured that GSK's progress in drug development is more judgement than luck, backed by an innovative structure of internal "centres of excellence" competing for central funds.
This commands a premium stock market rating, but it is justified and still a good bet for the long-term.
Hold on to BAT as it spreads east
British American Tobacco won't make any ethical investors' portfolios. As you know, its products - sold under the Lucky Strike, Dunhill, Kent and Pall Mall brands, among others - kill.
But if you are still reading this column, you will want to know that the company's global scale, with sales in 180 countries, puts it in a strong position. Advertising bans and tax rises have put some cigarette markets into decline, but many parts of Asia, Africa, Eastern Europe and Latin America are still relatively new markets, and BAT's brands are promoted as idealised Western goods. Underlying half-year profits were up 8 per cent to £1.2bn. The number of cigarettes it sold rose 2 per cent, with its most important brands growing 6 per cent.
The phenomenon of smoking bans is on the march, so developed markets will get ever tougher, and BAT has yet to break China - the biggest cigarette market in the world. But manufacturing is being moved east to lower costs and the company can always count on an army of addicted smokers.
With a dividend yield only a little over 4 per cent, the shares, up 23p to 1,096p, look too high for new investors, but are a hold.
New chief can give L&G further boost in quest for growth
Legal & General's UK life and pensions business - the hub of the L&G machine - appears to be on the right footing, achieving growth of more than 25 per cent in the first half of the year, but this is tempered by the news that customers are continuing to opt for the company's lower-margin products. Investors should remain patient as the shares will prove a lucrative investment.
Interim figures were mixed. Unit trust and ISA sales more than doubled, but mortgage protection sales fell - due to the slowing of the housing market - and the general insurance business saw a knock in profitability after a string of bad weather claims.
When we last looked at this stock six months ago, we advised investors to buy, encouraged by the inevitable recovery in the UK savings market and the changes in distribution rules which L&G looked well placed to take advantage of.
Although investors may be frustrated - after six months when the stock has moved only sideways - these two themes have by no means evaporated. L&G has secured places on all of the main panels of distributors, and the Government's message that no one is saving enough is continuing to be hammered home.
Furthermore, while L&G is not firing on all cylinders, it remains a well capitalised business with all the potential to continue stealing market share across all the areas it operates in.
What the business appears to need is a shot in the arm; its chief executive elect Tim Breedon, who takes the helm in January, may prove to be just that. Having already taken up his post as deputy chief executive, his influence in the firm will become more apparent as the year goes on.
While patience is still the order of the day, we reiterate our buy rating.Reuse content