AstraZeneca
Price £112.00
52 week high-low £115.40 - £80.90
Net Yield 2.00%
Hist/Pros PER 1400/21
Equity Market Cap (M) £173,175
Health Care
Andrew Barnett, VP Global Head of Investor Relations
AstraZeneca’s (AZN) business is a far cry from where it was a decade ago when the business was highly indebted and facing patent cliffs on key drug franchises. Thanks to its greatly improved research and development (R&D) engine, the business has successfully developed and commercialised a number of drug franchises, particularly in oncology.
Andrew was keen to highlight the optimism the R&D team have around its clinical pipeline and commented that the pace of innovation is in fact accelerating. Such is the business’ confidence that they have provided guidance of a double-digit annual growth rate for earnings out to 2025, and to 2030, have guided to “above industry growth”.
Key to this has been the emphasis that management have placed on orientating the business around its R&D team and selecting academics for leadership positions, including board positions. This had led to a science-based culture of innovation with the company currently generating sales from eleven blockbuster drugs (>$1B in annual sales). In contrast, many peers are dependent on only a few drug franchises.
A degree of uncertainty does however surround pricing in USA where the risk comes from the company’s exposure to Medicare – US government medical support - which represents c.15% of group revenue. AZN maintain that it is better insulated to pricing pressures than peers due to its speciality focus and more conservative pricing strategy, but there remains uncertainty over how the US pricing environment could change, particularly as we move through the election cycle to 2024.
QinetiQ
Price £3.48
52 week high-low £3.96 – £2.36
Net Yield 2.09%
Hist/Pros PER 22/14
Equity Market Cap (M) £2,018
Industrials
Steve Wadey, CEO and Carol Borg, CFO
QinetiQ is a UK headquartered aerospace and defence company. Steve Wadey (CEO) took the opportunity to reiterate the company’s strategy in light of a few recent acquisitions. The business aims to deliver six distinctive offerings which range from land robots that replace humans on the battlefield, to tools which enable militaries to engage in war games to aid training. These capabilities are then delivered predominantly in three core countries: the UK (62% of revenue), the US (26%) and Australia (8%); the three countries now conveniently tethered by the AUKUS pact.
The US, by far the world’s largest defence market, has understandably become an increasingly important part of the strategy. QinetiQ recently acquired Avantus which is a market leader in cyber and data analytics, which fits with the cyber & information advantage theme, and comes with a suite of US defence customer relationships. This acquisition doubled the size of the US business and added 25% to group revenue. Avantus also came with higher-than-group-average growth. Questions were asked about the valuation paid but overall, having listened to Steve’s rationale, it is obvious why Avantus was purchased and its fits with the long term strategy.
The question that most concerned us was the strategy itself. Do you think you can win in the US? What is QinetiQ’s competitive advantage? Steve’s reply nodded to QinetiQ’s unique capabilities and ability to provide bespoke customer relationships in a way not possible for a US defence stalwart such as Lockheed Martin or Northup Grumman. Only time will tell, but it seems the US, as is often the case, is the battleground on which the strategy will succeed or fail.
Whitbread
Price £26.06
52 week high-low £32.70 – £22.46
Net Yield 2.27%
Hist/Pros PER 124/21
Equity Market Cap (M) £5,254
Consumer Discretionary
Alison Brittain, CEO, Hermant Pate, CFO, and Peter Reynolds, Head of IR
It is commonly stated that ‘the only constant in business is change’ and so I always feel apprehension when I see an exceptional management team handover the reins to new management. We held an in-person meeting with Whitbread in our offices as they are in the midst of such senior management change.
Nicholas Cadbury, Whitbread’s Group Finance Director until March 2022, was, in my view, a prudent and highly skilled finance leader who subsequently joined British Airways owner, IAG, as their new CFO. Nicholas’ successor at Whitbread, CFO Hermant Patel joined from Greene King where he led the finance division, covering over 1,700 managed pubs. Hermant brings relevant experience in both hospitality and real estate management of freehold and leasehold property assets. This background appears valuable for advancing Whitbread-owned Premier Inn’s German expansion.
Alison Brittain, Whitbread’s current CEO is also set to leave Whitbread in 2023 to join the Premier League as its new Chair. Alison is a highly energetic and driven individual and an accomplished business leader and negotiator. She comes across as highly likeable, self-confident and resilient but equally open-minded and forward thinking. Set to replace Alison is, Whitbread alumnus and outgoing CEO of Domino’s Pizza Group, Dominic Paul. I’ve yet to meet Dominic who joins Whitbread in early 2023. However, he led Costa Coffee under Whitbread’s ownership and should therefore bring, on paper, valuable experience to re-energise Whitbread’s restaurant division post-COVID.
Looking ahead, we will focus on monitoring any new strategic initiatives that Whitbread’s new CEO and CFO announce to assess carefully how we believe they may resonate with Whitbread’s culture and the current opportunities and challenges facing the business.
CONSUMER DISCRETIONARY Tesla
Whitbread
Persimmon
Baratt Developments
CONSUMER STAPLESSainsbury's
ENERGYBP
Shell
FINANCIALSHSBC
Burford Capital
Aviva
HEALTH CAREAstraZeneca
Edwards Lifesciences
CVS Group
Dechra
INDUSTRIALSCeres Power
Spirax-Sarco
Melrose
Intertek,
Raytheon Technologies
Smiths Group
QinetiQ
Chemring
INFORMATION TECHNOLOGYMicrosoft
Adobe
REAL ESTATEBig Yellow
Derwent
Michael Bray, CFA, Research Analyst
James Ayling, CFA, Research Analyst
Henry Birt, Assistant Research Analyst
