Investment Column: Glaxo looks cheap as it turns back to basics

Hochschild Mining; Euromoney


Our view: Buy

Share price: 1186p (+12.5p)

GlaxoSmithKline has become unrecognisable from the company that its chief executive, Andrew Witty, inherited two years ago. The biggest change is the pharmaceuticals giant's approach to its business.

Gone is the emphasis on expensive research into the next blockbuster drug that will cure the ailments of millions and rake in billions for GSK. Instead, the company is much more concerned with its over-the-counter offer of soaps and toothpastes, with a particular bent towards the emerging markets. Lucozade, we hear, is very popular in China.

Investors, sadly, have not seen the changes replicated in the company's share price, which has grown only marginally in the past year. Yet that doesn't worry us. Indeed, we would be among the first in the queue to pick up GSK shares, which trade on a multiple of just 9.7 times forecast full-year earning and are undervalued. The dividend yield of almost 6 per cent represents a decent return on any investment.

For months now, investors have shied away from GSK because of concern about the likely ramifications of a US Food and Drug Administration (USFDA) inquiry into the safety of the company's diabetes drug, Avandia. Some patients have claimed it causes heart attacks and strokes but last week the USFDA upheld Avandia's safety record, which should lead to an uptick in sales. GSK recently put aside £1.6bn to settle a range of legal claims, including those relating Avandia, which means that to a large extent it has cleared the decks in terms of its liabilities.

Announcing yesterday's second-quarter numbers, GSK said it might start a shares buyback programme, which could help the price. GSK has ruled itself out of any bidding war for the Durex maker SSL, which yesterday recommended a bid from Reckitt Benckiser. The stars are starting to align for GSK and, at these levels, the shares should not be missed. Buy.

Hochschild Mining

Our view: Buy

Share price: 306.6p (+13.6p)

Yesterday's quarterly production numbers from Hochschild Mining revealed a more-than-healthy 12 per cent rise in silver equivalent ounces (which tots up both gold and silver output) to a total of 6.8 million ounces. That puts the company well on track to hit its annual target of 26.3 million ounce but it wasn't the only plus -point.

The report also suggested that the newly-installed chief executive, Igancio Bustamente, and chief finance director, Ramon Barua, were making headway in dealing with declining mines. They have significantly improved the overall life-of-mines metric, up to 7.9 years from 7.1 years at the end of 2009. Add to this the exploration success at its Azuca site and a massively expanded exploration budget (from $30m last year to $50m in 2010) and Hochschild's prospects look promising.

Goldman Sachs has the company on 12.9 times this year's forecast earnings, dropping to an attractive 6.8 next year. It notes the development of the Azuca and Crespo operations in Peru, coupled with further increases in the resource life of the company's mines. This could fuel the stock, so buy.

Euromoney

Our view: Buy

Share price: 580.5p (-8p)

The publishing industry has not been a great place to be during the downturn, but one business that fared relatively well compared to the rest was Euromoney Institutional Investor.

The business-to-business publisher and events organiser published an update yesterday which revealed that trading was in line with the expectations set out in its interim results. The quarter to the end of June saw revenues increase by 16 per cent to £97.9m, ahead of analysts' expectations, as the events business recovered and the wider advertising market improved.

The group has also been working hard to change its business model over the past few years. Since buying Metal Bulletin magazine and its web portal, Euromoney has been increasing the proportion of revenue brought in from subscriptions, making it less dependent on the advertising which crumbled so completely during the recession.

Subscriptions now make up just under half of the total revenues and Euromoney revealed yesterday that revenues were up 4 per cent during the quarter. The move online has also proved easier to capitalise on for a business-to-business company than more consumer-focused plays.

Euromoney was not immune to the downturn but cost-cutting helped it to maintain margins and Investec has the stock on an undemanding 11.9 times forecast full-year earnings. Management have voiced concerns about uncertainties but Euromoney has shown it can trade through them. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'