Today I am looking at four of the newsmakers in Wednesday business.
AstraZeneca
Pharmaceuticals giant AstraZeneca (LSE: AZN) attracted the headlines in midweek trade following news it had shorn off its Caprelsa drug to Genzyme. The medicine — which is used to treat rare diseases — has been sold for an initial $165m, and additional payments worth a potential $135m have been written into the deal pending certain development and sales milestones.
AstraZeneca says that the deal boldens its “strategic focus on its three main therapy areas,” namely oncology; cardiovascular and metabolic diseases; and respiratory, inflammation and autoimmunity. And I for one am convinced these segments should deliver blockbuster returns in the years ahead, boosted by a bubbly product pipeline and thrusting demand from emerging markets. Consequently I reckon a forward P/E multiple of just 15.2 times is great value.
Premier Oil
Fossil fuel leviathan Premier Oil (LSE: PMO) has made much of the running in Wednesday’s session, extending the terrific performance of the mining and energy sectors over the past week. The business was last 10.1% higher on the day, thanks to Brent prices bumping back above $50 per barrel. But I believe this recent resurgence will prove a short-lived phenomenon as the oil market remains on shaky ground.
Indeed, the IMF’s downgraded growth forecasts of just 3.1% in 2015 revealed yesterday are just above the level that suggests a global economic downturn could be in the offing. Premier Oil revealed last month that production has averaged 57,100 barrels per day so far in 2015, above its full-year guidance of 55,000 barrels. But while this is of course positive news, I believe the likelihood of oil prices sinking to fresh multi-year lows still makes the producer a poor stock choice.
John Wood Group
Thanks to the aforementioned concerns over the oil market, I believe services provider John Wood (LSE: WG) remains an equally unattractive investment destination. Still, shares prices ticked marginally higher in Wednesday trading after the firm announced it had secured a multi-million dollar contract with hardware supplier Bechtel to supply an automated engineering system for Tengizchevroil’s crude storage capacity project in Kazakhstan.
While such contracts are of course cause for celebration, it does not distract from the wider malaise affecting the oil industry, with global supply continuing to ratchet higher and keeping inventories at bursting point. John Wood is expected to endure a 20% bottom-line slip in 2015 as fossil fuel producers slash their capex budgets, and I do not expect earnings to move back in the right direction any time soon.
Tricorn Group
Engineering play Tricorn (LSE: TCN) was recently flat from Tuesday’s close following the release of a mixed trading update. The company — which manufactures pipes for a wide variety of industries — advised that revenues for the period ending April-September are expected to be 5% lower from a year earlier, as lower demand from the UK Transportation offsets rising sales in the US and China.
Still, Tricorn anticipates adjusted pre-tax profit to be “substantially ahead” of levels seen in the same 2014 period. I believe investors should exercise caution before ploughing into the firm, however, given concerns over current demand. With the firm’s Energy arm also leaving it exposed to the mining, oil and gas sectors — sales at this division dipped 3% in the first half — I believe a forward P/E rating of 21.2 times could be considered a tad heady at the current time.
