Back in February last year I penned an article titled David & Goliath: AstraZeneca versus Hikma Pharmaceuticals, which compared the prospects of the two firms and suggested that looking down the food chain in the pharmaceutical sector could produce an investment idea that’s as equally solid as a FTSE 100 company but with potentially more exciting forward prospects.
Looking at the performance of those two firms since then, I’m amazed at the outcome. AstraZeneca (LSE: AZN) is up around 20% and Hikma Pharmaceuticals (LSE: HIK) is up a whopping 94%. Seems as if the theory was a good one — smaller firms can perform better than large ones for investors. Why didn’t I buy some of Hikma Pharmaceutical’s shares last year?!
The sector is aglow
With the problems we’ve been seeing in other sectors such as supermarkets, banks and commodity-related businesses, the pharmaceutical sector continues to look attractive, and I think 2015 will see more money magnetise towards it. That’s nothing to be scared of. It makes sense to invest with the crowd eventually, because that’s when we see value realised in our investments. In the end, we need an upward trend from our buying point in order to realise a capital gain.
The result on Hikma Pharmaceuticals bolsters my conviction that the lower reaches of the London market offers the better growth opportunities. However, today I’m looking at three firms representing a big spread of market capitalisations, so there’s something for everyone. Shire (LSE: SHP), BTG (LSE: BTG) and Dechra Pharmaceuticals (LSE: DPH) all have one thing in common: they all seem attractive in terms of growth prospects for 2015 and beyond.
Here’s how they compare, with leviathan AstraZeneca thrown into the mix as reference:
|
Company |
Index |
Share price |
Market capitalisation |
Projected earnings’ growth 2015 |
Projected earnings’ growth 2016 |
|
AstraZeneca |
FTSE 100 |
4687p |
£57,940 m |
(3%) |
(4%) |
|
Shire |
FTSE 100 |
4500p |
£27,974 m |
10% |
11% |
|
BTG |
FTSE 250 |
811p |
£3,168 m |
34% |
55% |
|
Dechra Pharmaceuticals |
FTSE 250 |
852p |
£733m |
6% |
12% |
Excluding AstraZeneca’s lacklustre earnings’ prospects, the first thing I notice is that all three of these growers enjoy accelerating earnings’ forecasts, which means City analysts see better and better performance ahead — that’s important when picking growth shares.
Shire is a big beast at just under half the size of AstraZeneca and both those firms sit in the FTSE 100. Nevertheless, Shire’s growth prospects still seem bright and some may find the firm’s big capitalisation reassuring. However, I’m more interested in BTG and Dechra, which both occupy the FTSE 250 index. Yet BTG is around a ninth the size of Shire, and Dechra is around one thirty eighth the size of Shire, so we can pick from have a good spread of market capitalisations.
Growing fast
BTG’s rate of earnings’ growth seems stunning. Maybe that’s why we see Woodford Investment Management listed as a major shareholder. Neil Woodford knows his onions when it comes to the pharmaceutical sector.
That said, there’s nothing wrong with the growth analysts expect from all three of these pharmaceutical candidates. These growth rates compare well to many other recent forecasts for firms in other sectors, which is why the pharmaceutical sector seems to stand as one of the few remaining bastions of defensive growth.
Naturally, there are differences in the products, operations and markets between these three growers but all of them are worthy of further research and seem attractive for 2015 and beyond.
