Shareholders have been waiting for boss Pacal Soriot’s turnaround plans at AstraZeneca (LSE: AZN) to return the FTSE 100 pharmaceutical giant to earnings growth. And while it hasn’t actually happened yet, there’s finally an EPS rise forecast for 2019, and the share price has already been rising in anticipation.
AstraZeneca shares have, in fact, put on 90% over the past five years, though with expected earnings growth still not here yet, that’s pushed forecast P/E multiples to over 20.
And while I think that’s probably a fair valuation based on the company’s long-term potential, I’m seeing BTG (LSE: BTG) as a similarly attractive proposition but at a significantly lower valuation.
Share price spike
BTG shares jumped by more than 6% Thursday morning after the firm upgraded its full-year growth guidance ahead of first-half results due on 13 November.
The company’s “better than expected performance” has led it to raise its product sales growth expectations for its Oncology and Vascular portfolios to 15-17%. Overall sales for the full year are expected to be pretty much flat at constant exchange rates, and analysts have a modest 1% EPS growth prediction for the year to March 2019.
Part of BTG’s recent success has been down to the acquisition of Novate Medical, with one result being a wider portfolio of treatments, which should help reduce risk.
For the year ending 31 March, we saw net operating cash flow of £120.7m, leaving the company with £210m in cash and equivalents at year end. The company also said it did “not currently require significant levels of debt financing to operate its business,” which suggests there aren’t going to be any liquidity problems.
Despite early rises, investors do seem to have lost their appetite for BTG this year, and we’re looking at a 22% share price fall since the start of 2018. But since mid-July, a 21% price recovery suggests confidence has been returning, and we’re now looking at a five-year gain of 55%.
That looks impressive, but it’s been a volatile period, and BTG has yet to reach the stage of paying dividends. That should start this year, though forecast yields for this year and next are very low at 0.1% to 0.2%.
But on P//E ratios of 16.5 to 17, I see the shares as good value for their long-term growth potential, though I could see more volatility before steady earnings growth sets in.
Meanwhile, back at AstraZeneca, we’re looking at a company that was once a big attraction to dividend investors. But since the firm’s loss of key patent protections and its focus on building up its development pipeline (which is very much a long-term process when you’re talking about getting drugs developed, tested and approved), those investors have seen their annual payments remaining flat while inflation has been chipping away at their value. And there’s really no change expected this year or next.
But then, yields of 3.6% aren’t too bad, especially when that really could represent a bottoming out of the yield. EPS is expected to dip by around 20% this year, but the 11% recovery indicated for 2019 really could be the start of a new period of earnings growth. And that should mean a return to progressive dividends.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca and BTG. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.