Shares digital

GlaxoSmithKline (GSK) – £13.44, stop loss £10.75

SHARES SUMMARY

Safe haven-like qualities, a new chief exec and plenty of newsflow make Glaxo a solid bet for 2008.

Business:

Pharmaceutical giant and drug developer

Vital stats:

Market Value: 74,969 million

Historic PE for 2006: 13.1

Prospective PE for 2007: 14

Prospective PE for 2008: 13.5

Sector PE: 12.9

1-month relative strength: 10.2

1-year relative strength: 2.5

Yield for 2007: 4.1

NMS: 19,000

Spread: 0.15%

High cash generation and people still need to buy medicines even if the economy slows, shares in the drug major have already started to capture the imagination of the market, rising 16% since mid-November.

Glaxo offers a solid 4.1% dividend yield and with its ‘haven’ qualities underpinning the stock there are also plenty of potential catalysts for further share price rises. This year the company will be getting the first Phase III data from trials for its breast cancer drug Tykerb and should receive a decision from regulators about its drug to treat a deficiency of platelets in the blood, Eltrombopag, which was filled at the end of 2007.

Some 25 new drugs are scheduled for launch over the next three years or so and the company still has a stronger pipeline than its peers AstraZeneca (AZN) and Shire (SHP). More acquisitions and licensing deals with smaller biotechnology’s companies can be expected in 2008 as the the company will want to keep adding to its pipeline.

It will also see new broom Andrew Witty take over the helm in May and this should mark a positive turning point for the company, which suffered last year while speculation about who would succeed Jean Pierre Garnier as CEO dented sentiment.

Despite its size the company is not without a little risk, as with all companies of this kind any delays or unforeseen problems with drug trials can knock the stock. The clearest potential banana skin is cervical cancer drug Cervarix which took a knock when US regulators the FDA demanded more information, potentially delaying its launch from anywhere from six month to two years, providing all goes well. However, the City is aware of this risk and it has not prevented the shares from going on a storming run over the last few months and any positive news on the drug would be a boost.

Generic competition is always a threat but a large development programme is also underway to find a replacement for its best selling drug Adviar which brings in around $6 million of revenue a year. Evolution analyst Peter Cartwright believes the company is on track with finding a replacement before generic competition threatens to join the market in 2011. He has a £15.75 target price for the shares, almost 20% above current levels. Bolstering the investment argument still further, the technicals are also looking good, with our regular chartist, Simon Griffin, backing the stock himself in this issue with a £15.06 price target (see page 40).

by: Susanna Twidale