A promising start

Small-cap Shield Therapeutics (LSE: STX) floated on the AIM market last year and currently has a market cap of £183m. Shield’s plans certainly sound promising. The group’s main product is Feraccru, a treatment for iron-deficiency anaemia. The company is actively marketing Feraccru in Europe and has secured patent protection until 2035 in a number of markets, including the US.

Today’s half-year results provide an insight into progress. H1 revenues were £142,000 and the group reported a net loss of £9.6m. However, the company had net cash of £21.5m at the end of June, so there’s no imminent risk of a cash shortage.

According to management, the group’s strategy is to licence Feraccru in non-core markets and market it directly in major markets such as the UK. The company currently has 20 sales staff “driving product recognition and sales” in Germany and the UK.

Pack sales are said to have increased by 375% in Germany between December 2016 and July 2017. In the UK, growth over the same period was 184%.

2.5m patients?

The company is looking forward to the results of a phase 3 clinical trial in early 2018. If the results are as expected the company hopes to gain regulatory approval in the US. According to chief executive Carl Sterritt, this could increase the potential market opportunity for Feraccru from 330,000 patients to “upwards of 2.5m patients”.

It all sounds promising. But as investors we also need to consider the firm’s valuation. In today’s results, Shield reiterated its guidance for annual sales of £20m-£25m in 2020. My concern is that the group’s current market cap is already £183m.

This guidance means that in three years from now, the stock may still be valued at more than seven times sales.

This sky-high valuation seems to carry a high risk of disappointment. I won’t be investing.

An unlikely double-bagger

Shield Therapeutics may strike it lucky and attract a takeover bid. But I’d rather put my money into a proven performer.

Shares of British American Tobacco (LSE: BATS) have doubled since 2010. During the same period, the group’s dividend payout has risen by 50%. Patient shareholders have enjoyed a market-beating capital return and a generous dividend income.

Big-cap stocks don’t always perform this well. But BAT’s share price has now fallen by 17% from the all-time high of £56.40 seen back in June. The shares are starting to look more reasonably valued, in my view.

Earnings are expected to climb by 14% to 282.4p per share this year, and by a further 11% in 2018. Dividend growth is expected to be around 9% in both years — well above inflation and average wage growth.

These forecasts put British American Tobacco on a 2017 forecast P/E of 16.5, with a prospective yield of 4%. The recently-completed acquisition of Reynolds is expected to result in cost savings that should support margins. For investors wanting real returns on their investments, I believe BAT could be a profitable buy.

The post Why I’d ditch this high-risk growth share to buy British American Tobacco plc appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

A lucrative startup?

The question must have crossed a few minds when reading today’s first-half results from Shield Therapeutics (LSE: STX), which floated on AIM as recently as February 2016.

Shield describes itself as a “specialty pharmaceutical company focused on the development and commercialisation of late‑stage, hospital‑focused pharmaceuticals.” It reported its first revenues, of £240,000, from sales of its iron deficiency anaemia treatment Feraccru after it was approved in February. It’s a modestly-priced medication, but chief executive Carl Sterritt described its pricing agreements as attractive, and sales should also commence in Germany in October.

It’s hard to put any kind of valuation on Shield’s 159p shares at the moment, as there are no profits forecast yet, and consistent losses pencilled-in for this year and next. The firm did have £28.4m in cash on the books at 30 June but with pre-tax losses of £18m-£19m per year forecast for this year and next, there’s going to be some more fundraising needed before any profits start rolling in.

Where does this leave Shield Therapeutics as an investment possibility? It’s not a total blue-sky punt as it does have a marketable product and does actually have sales cash coming in, but other than that I see it as pretty much straight gambling if you invest right now — it looks like one of those companies that could make you a very big profit it it comes good, but could lose you your stake if it doesn’t.

Tried and trusted?

Are you better, then, to stick with an established blue chip pharmaceuticals company like AstraZeneca (LSE: AZN)? AstraZeneca was struggling against the expiry of patents and increased competition from generic drugs when Pascal Soriot took over as chief executive in October 2012.

Mr Soriot’s shake-up was severe, and it was always going to take a few years to rein in the firm’s falling earnings and return them to growth. I’d optimistically hoped for EPS growth by 2017, but that seems unlikely now, with falls of 2%-3% forecast for this year and next. Still, if we see EPS growth in 2018, that really won’t be a bad turnaround result at all.

I’m a little surprised that the price has spiked by a third since the middle of June to 5,164p. That’s taken the shares to a forward P/E multiple of 16.4 for 2017, though interim results on 28 July saw second-quarter falls across the board. It was all in line with expectations, mind, and there’s really nothing new that wasn’t known six months ago.

I suspect the price recovery is simply down to investors re-appraising the value of good old safe and solid shares like our big pharmaceuticals players, partly in the sobering light of the EU referendum result. And they’re realising that P/E ratings of around 16 or so aren’t at all stretching for dependable investments providing dividend yields in excess of 4% and which should be generating profits for decades to come.

At least, that’s the way I see AstraZeneca, and it would nice to think the market does too.

The post Is Shield Therapeutics plc a better bet than AstraZeneca plc? appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.