AstraZeneca: Trump tax bump can't disguise the challenge it and other druggies face

AZ is one of a number of UK companies with significant US operations to update on the benefits of cutting the corporate tax rate to 21% from 35%

In common with its rivals, AZ is finding it difficult restocking the drugs cupboard

AstraZeneca PLC’s (LON:AZN) annual results received a Trump bump as the company booked a US$617mln windfall following tax cuts for businesses brought in by the President.

AZ is one of a number of UK companies with significant US operations to update on the benefits of cutting the corporate tax rate to 21% from 35%.

READ: AstraZeneca reports positive top-line data from phase III COPD trial

The drugs giant appears to be the model of efficiency when it comes to tax. Its rate last year was just 14%, and it said it will pay governments a levy of 16-20% in 2018.

While its finance function appears to be world-class, full-year results painted a rather less flattering picture of AZ’s main business – selling drugs.

Revenues slide reversing?

Revenues fell by 2% to US$22.46bn, while rigid cost control helped boost operating profits by 2% to US$6.855bn. Once currency fluctuations were factored in, profits were flat.

In the final quarter, sales started to grow (albeit marginally), rising 3% to US$5.77bn. But core operating profits were down 12% at US$1.78bn.

The dividend was unchanged at US$2.80, although AZ has committed to a progressive pay-out policy.

Crestor sales fall by more than US$1bn

Looking ahead, AZ said it expects product sales to grow in low single digits while earnings per share will be in the US$3.30-$3.50 range. The figure for 2017 was US$4.28.

In the year just gone, two drugs gained blockbuster status (generating revenues of more than US$1bn), while it has three cancer drugs that it believes have significant potential.

On the debit side, revenues from one of its staples, the cholesterol buster Crestor, fell by more than US$1bn.

In short, AZ is running just to stand still, which is a common theme among big pharma, where there is a rush to replenish drug pipelines.

Chief executive Pascal Soriot said: "AstraZeneca's revenues improved over the course of the year, a sign of how our company is steadily turning a corner.

“Strong commercial execution helped us bring our science to more patients, making the most of our exciting pipeline. We made encouraging progress across the main therapy areas and delivered strong growth in China.”

Share price drifts 

The shares, off around 5% in the last year, fell a further 12.5p to £48.75, valuing the business at £61.4bn.

Analysts at the American bank Jefferies said 2017 earnings per share beat forecast, but forecast EPS was a “light” versus consensus.

City broker Liberum, which rates the stock ‘hold’ with a £50 a share target price, said: “Overall, a reasonable set of numbers that confirm the return to product sales growth for 2018 albeit with a further earnings decline.

“For us the focus remains on R&D where we think the current valuation fairly captures the risk-adjusted value.”

Quick facts: AstraZeneca

Price: 8767 GBX

Market: LSE
Market Cap: £115.05 billion

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