Today, I’m looking at whether FTSE 100 pharma giant GlaxoSmithKline (LSE: GSK) and AIM-listed cannabis products specialist GW Pharmaceuticals (LSE: GWP) are simply too expensive.

GlaxoSmithKline

After four years of earnings declines, largely caused by a spate of patent expiries, Glaxo is set to return to growth this year. New product sales are kicking in and half-year results last month showed strong momentum in all three of the group’s divisions of pharmaceuticals, vaccines and consumer healthcare.

At a current share price of 1,680p, the 12-month forecast price-to-sales (P/S) ratio is 3, the price-to-earnings (P/E) ratio is 16.8 and the dividend yield is 4.8%. I don’t believe this valuation is too expensive, and rate Glaxo a buy. If you want to know what too expensive looks like, consider Glaxo’s all-time high of over 2,000p — 15 years ago — when the P/S was 6, the P/E 28 and the dividend yield less than 2%.

GW Pharmaceuticals

GW Pharmaceuticals was founded in 1998 to develop cannabis-based pain relief products. The company listed on AIM in 2001 with initial target markets of multiple sclerosis (MS) and cancer pain. Its only commercial product to date — Sativex for the treatment of MS spasticity — has been selling for over 10 years. Trials continue for a number of other products, with the most advanced being Epidiolex for childhood epilepsy.

The table below shows some key financials for the past 10 years.

The majority of group revenue has come from research and development fees from partners, with Sativex product sales revenues representing a small proportion of the total. After early growth in both Sativex and total revenue, no real headway has since been made. However, cash-burn has  increased rapidly in the last few years as the company pushes to get further products approved and to market.

Q3 results released at noon today show a continuation of this trend. Total revenue for the nine months to 30 June came in at £8.6m, with Sativex product sales revenues at £3.7m. Operating cash-burn accelerated to £57.2m. On the plus side, GW has stacks of cash on the balance sheet, largely thanks to the enthusiasm of US investors (there have been a number of fundraisings since an IPO of American Depositary Shares on the NASDAQ Global Market in 2013).

Too expensive?

So, we have a company whose peak annual revenue to date is £33.1m and whose one commercial product has generated £26m sales revenue over a period of 10 years. How much is GW worth?

The shares are trading at around 600p, valuing the business at over £1.8bn. Taking the peak annual revenue to date of £33.1m gives a P/S of 54 and peak earnings per share of 3.6p gives a P/E of 167. Wow! Remember Glaxo’s P/S and P/E when it was expensive?

GW’s valuation looks crazy to me. It’s priced as if its new childhood epilepsy product Epidiolex is already an approved drug and a nailed-on blockbuster. As such, I can only see this as a stock to avoid on the grounds that it’s simply too pricey.

The post Are GlaxoSmithKline plc and GW Pharmaceuticals plc simply too expensive? appeared first on The Twelfth Magpie.

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

GW Pharmaceuticals (LSE: GWP) shares shot up 70% in March, to end the month at 421p. The company specializes in developing “novel therapeutics from its proprietary cannabinoid product platform“, and got some good news from a phase 3 trial of its Epidiolex (cannabidiol) treatment for Dravet syndrome on 14 March.

Dravet syndrome is a rare and severe form of epilepsy that affects children, and as yet there are no FDA-approved treatments — and so a breakthrough there could be nicely profitable. The trial results found that the drug reduces seizures, with “high statistical significance” when compared to a placebo control. As a result, the share price more than doubled on the day, though it’s fallen back a bit since.

Epidiolex notwithstanding, the shares are down 40% since their peak in June 2015, and the company still looks to be some years away from turning a profit. There was $324m in cash on the books at 31 December, although GW did make an operational loss of $86.6m in its last full year. The next step for Epidiolex is a regulatory submission, but though the drug does seem promising, this still looks like a risky investment to me.

Partnership

A takeover approach is one event that can make a share price jump, and we heard on 23 March that Premier Foods (LSE: PFD) had kicked out an offer by McCormick & Company saying it “significantly undervalues Premier’s growth prospects and represents an insufficient premium to Premier’s enterprise value“. The announcement was accompanied by news of a cooperation agreement with Nissin Foods, the inventor of instant  noodles.

The McCormick offer, revised from an earlier 52p bid, valued Premier shares at 60p, and on the day we saw a 70% share price rise. Since then, McCormick has upped its offer to 65p per share, and the shares ended the month trading at 57p for an 88% rise during March. The Premier board still believes that’s too cheap, but it’s going to have talks and hopes for an even better offer to emerge, and if that comes off then there’d be a profit to be made.

Even after the month’s rise, Premier shares are still valued on a P/E multiple of under seven based on 2016 forecasts, so it looks like there’s room for negotiation.

Rising oil

Results on 17 March gave oil explorer and producer EnQuest (LSE: ENQ) a 31% share price boost, and since then the price has kept on going for a 71% rise over the month. We’ve now seen a 118% gain since 20 January’s low point, buoyed by the price of oil which seems to be steadying at around $40 per barrel.

EnQuest reported a 31% rise in production for the year to December 2015 to 36,567 barrels of oil equivalent per day, which was above the upper end of the company’s guidance. The price of extracting the stuff dropped dramatically, due to continuing savings in operating costs, from $42.10 per barrel in 2014 to just $27.70 per barrel.

Net debt rose to $1.55bn at year-end, but the firm reckons it’s “well within its net debt to EBITDA covenant of five times“. EnQuest isn’t expected to get back to profit this year and next, so it’s tricky to value — but I reckon there could be more to come.

The post 3 Shares You Should Have Bought In March: GW Pharmaceuticals (+70%), Premier Foods (+88%), EnQuest (+71%) appeared first on The Twelfth Magpie.

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

The study showed that Epidiolex achieved the primary endpoint of a significant reduction in convulsive seizures assessed over the entire treatment period, compared with placebo. This is important for the company because it represents the first placebo-controlled evidence to support the safety and efficacy of pharmaceutical cannabidiol (which is derived from cannabis) in children with Dravet syndrome. This could lead to its becoming the first FDA approved treatment option specifically for the condition and, looking ahead, more gains could be on the cards for investors in GW Pharmaceuticals.

Clearly, future news flow is a “known unknown”, but it seems plausible that the company’s shares could keep rising in the short run due to the sudden upturn in investor sentiment. As such, for less risk averse investors, GW Pharmaceuticals could be worth a closer look, although its shares are likely to be relatively volatile as more news is reported.

Also rising today are shares in recruitment company Kellan Group (LSE: KLN). They are up by 27% after the release of the company’s full-year results which showed that it is making progress in its restructuring efforts. For example, revenue increased by 8.3% in 2015, with the company’s bottom line moving from a loss of £0.06m in 2014 to a profit of £0.43m in 2015. This was aided by a reduction in administrative expenses, which fell by 11.1% year-on-year.

Looking ahead, the company’s investment in its infrastructure could aid further profit growth over the medium to long term. In particular, new IT systems should improve efficiencies and could have a positive impact on sales. With Kellan trading on a price to earnings (P/E) ratio of 11.8, it appears to offer good value for money and therefore may be of interest to less risk averse investors.

Meanwhile, shares in Carpetright (LSE: CRP) are up by around 7% today despite no significant news having been released by the company. Despite this rise, its shares are still down by 29% since the turn of the year, but over the medium term they could easily recover lost ground.

A key reason for this is the company’s upbeat earnings forecasts. In the current financial year, Carpetright is expected to increase its bottom line by 23%, with further growth of 30% next year and 23% in the following year being pencilled in. This means that its net profit could be as much as 97% higher within the space of three years, which has the potential to act as a positive catalyst on its share price.

And while there are uncertainties surrounding the performance of the UK and European economies, Carpetright’s price to earnings growth (PEG) ratio of 0.5 indicates that there is a sufficiently wide margin of safety on offer to merit purchase right now.

The post Should You Buy Today’s 3 Big Gainers? GW Pharmaceuticals plc, Carpetright plc And The Kellan Group PLC appeared first on The Twelfth Magpie.

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

Rolls-Royce

At the weekend, The Guardian reported that Rolls-Royce (LSE: RR) will be facing a second corruption investigation in Brazil, looking at allegations that the company paid bribes to win contracts with Brazil’s state-owned oil company, Petrobras. Rolls-Royce is already being investigated by the UK’s Serious Fraud Office for potential bribery and corruption in Indonesia and China. The pressures from recent corruption allegations seem to intensifying, and the prospects of Rolls-Royce facing heavy financial penalties is increasingly more likely.

Meanwhile, Rolls-Royce is already struggling with falling demand for almost everywhere. The impact of defence spending cuts and lower oil prices has intensified, causing the group to report a 32% decline in underlying pre-tax profits. Even its most promising business segment, commercial aerospace engines, reported a 27% decline in underlying operating profits.

But although the engine maker is likely to endure more short-term pain, longer-term fundamentals are attractive. Limited competition in the sector and robust commercial aircraft demand should mean falling revenues and earnings would only be a short term issue.

Dialight

Dialight (LSE: DIA) has announced plans to cut 12% of its workforce, following a 74% decline in its 2015 H1 underlying operating profits to £1.7 million. Demand for industrial and hazardous LED lighting products remains buoyant and Dialight has been growing its market share, but ballooning costs have held back profits.

Despite the collapse in profits, revenue for the first half of 2015 actually grew 14%, with lighting revenue increasing by 24%. With demand so buoyant, some sacrifice in margins in the shorter term should not be a major worry for investors. Although long-term fundamentals are broadly intact, Dialight’s forward P/E of 34.3 shows it is still an expensive stock.

Land Securities

Fears over falling foreign investment appetite for London commercial property have hurt shares in Land Securities (LSE: LAND). Its shares, which have been trading above its net asset value (NAV) for much of the past 52 weeks, now trades a 6% discount.

Although concerns over the slowing global economy present risks to the London property prices, underlying market trends suggest the outlook for Land Securities remains positive. The market for London office property remains very attractive, given the conversion of office space to residential use and the limited number of developments in Central London. This should mean the trends of rising rents and falling vacancy rates is only set to continue.

With London office space accounting for around 45% of the value of Land Securities’ portfolio, it is likely that the REIT will deliver further valuation gains in the medium term.

GW Pharmaceuticals

GW Pharmaceuticals (LSE: GWP) is looking to develop cannabis-based medicines for a wide range of treatments, including for schizophrenia, cancer pain relief, epilepsy and autism. As is expected of a pharmaceutical company focussing on early-stage drug development, GW is running at a loss.

In the nine months to 30 June, losses more than doubled on the prior year, from £14.9 million to £32.3 million, as R&D spending has been ramped up. However, with gross cash of £254 million, the company is well funded. Looking ahead, GW will receive further payments from its commercial partners upon the achievement of certain approval and commercial milestones, which should mean its financial flexibility will not be an issue for quite some time.

Although there are quite a few pharmaceutical companies looking at the potential of cannabis-based treatments, none have had as much success in clinical trials. This should mean GW’s drug pipeline is closer to market than many of its competitors. GW has four Phase 3 epilepsy clinical trials under way and recently announced positive proof of concept data in schizophrenia in a Phase 2a study.

With such attractive prospects, GW could find itself being an appealing takeover target. There are few signs that the recent flurry of consolidation activity in the sector is abating, as large pharma groups have increasingly turned to M&A to sustain growth in earnings.

The post Is It Time To Buy Rolls-Royce Holding plc, Dialight plc, Land Securities Group plc And GW Pharmaceuticals plc? appeared first on The Twelfth Magpie.

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Jack Tang has a position in Land Securities Group plc. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Clearly, the market is concerned regarding the performance of the business, but GW Pharmaceuticals remains a company with a very bright long term future. For example, it has strong momentum, with four phase 3 trials progressing for its key prospect, Epidiolex, as well as the company having a number of other early and late stage clinical programmes which could produce positive results across numerous potential indications.

Furthermore, GW Pharmaceuticals could benefit from improving investor sentiment as it moves towards its planned new drug application (NDA) in 2016 and, with phase 3 data expected to be reported in the months ahead, it remains a key period for the company and one that offers significant future potential. And, while its share price is down heavily today, it is still up by 50% since the turn of the year, which indicates that investor sentiment is relatively strong.

Despite its bright future prospects, there are a number of health care companies that offer growth potential and yet are also delivering strong profitability at the present time. Two notable examples are Alliance Pharma (LSE: APH) and Advanced Medical Solutions (LSE: AMS), with the former being focused on acquiring the rights to off-patent drugs that still offer strong margins, and the latter concentrating on wound care dressings and adhesives.

Looking ahead, Alliance Pharma is forecast to increase its bottom line by 2% this year and by a further 7% next year. Encouragingly for investors in the stock, it offers a healthy dividend yield of 1.9% and, with dividends per share having increased in each of the last five years, its management team appears to be confident in the future prospects for the business.

Similarly, Advanced Medical Solutions has increased its dividends per share in each of the last five years and, while it yields just 0.5% at the present time, it pays out just 12% of profit as a dividend, thereby indicating that shareholder payouts could rise significantly in the long run. Furthermore, with earnings having risen in each of the last five years and being due to increase by around 5% per annum in each of the next two years, Advanced Medical Solutions appears to be a relatively stable business.

So, while GW Pharmaceuticals does have considerable potential, the likes of Alliance Pharma and Advanced Medical Solutions appear to offer greater stability as well as room for growth, too. As such, they seem to be the more appealing buys at the present time.

The post GW Pharmaceuticals plc Sinks Over 10%: Is It A Better Buy Than Alliance Pharma plc And Advanced Medical Solutions Group plc? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Advanced Medical Solutions and Alliance Pharma. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Looking ahead, though, which of the four is the best buy for longer-term investors?

Valuations

Clearly, pharmaceutical stocks tend to trade at a premium to the wider index, so comparing them directly to the FTSE 100, for example, is unlikely to lead to a conclusion that they offer good value for money. Of course, they tend to trade on premium valuations because of their appealing mix of defensive characteristics and strong growth potential, so even though AstraZeneca has a price to earnings (P/E) ratio of 16.3 (which is higher than the FTSE 100’s P/E ratio of around 16), it still seems to offer good relative value for money.

That’s because Hikma, BTG and GW have P/E ratios of 26.2, 37.7 and, in the case, of GW, its status as a loss-making company means it does not have a positive P/E ratio. As such, AstraZeneca is certainly the cheapest of the four stocks but, as mentioned, future growth potential can be significant in the pharmaceutical sector.

Growth Prospects

There is a clear split when it comes to the growth forecasts of the four companies over the next couple of years. That’s because, while AstraZeneca’s bottom line is expected to decline in the low-single digits before resuming growth in 2017, and GW’s losses are due to widen in 2015 and 2016, BTG and Hikma have relatively bright futures.

For example, Hikma’s bottom line is forecast to grow by 6% this year and by 15% next year, which puts it on a relatively appealing price to earnings growth (PEG) ratio of 1.6. However, BTG seems to have much greater appeal despite its higher P/E ratio, with it set to post earnings growth of 27% and 53% over the next two years, which puts it on a PEG ratio of just 0.5.

Looking Ahead

Although AstraZeneca is going through a challenging period, with its loss of patents continuing to impact on its bottom line, it still offers excellent value for money relative to its sector peers. Certainly, BTG has considerable appeal, with its stunning prospects meaning that it appears to offer growth at a very reasonable price and could be worth buying at the present time.

Furthermore, Hikma also has great potential to continue its run thus far in 2015, although GW’s forecast increase in losses could cause its share price to come under pressure in the medium term, with investors having other strong options within the pharmaceuticals space available to them.

However, while there is opportunity elsewhere, AstraZeneca still seems to be the pick of the four companies due to its long-term potential and appealing valuation. And, for long term, patient investors, it could deliver stunning share price growth as its acquisition spree is all set to revitalise its top and bottom lines.

The post Should You Buy AstraZeneca plc Instead Of Hikma Pharmaceuticals Plc, BTG plc And GW Pharmaceuticals plc? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended BTG. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

According to Circle, government funding for Hinchingbrooke has been cut by 10% this year. Management believes that, after this funding cut, Circle would have to make a substantial investment in the franchise on top of the £5m it is already required to provide. 

Of this £5m investment, Circle has already provided £4.8m. So, under the contract Circle is require to provide an additional £160,000 to Hinchingbrooke in addition to contract termination and re-procurement costs, which are capped at £2m. 

According to City analysts, this move by Circle will have no effect on pre-tax profit for 2015 and 2016. — the company is currently forecast to report a pre-tax loss of £7m for 2015 and loss of £6.8m for 2016 — however, pre-tax profitability for 2017 and 2018 is expected to be affected by £3m and £4m respectively. 

And it remains to be seen how this move will affect Circle’s ability to win additional contracts with the NHS in future. As well as Hinchingbrooke, the group has also been awarded a £125m contract to provide musculoskeletal services for 440,000 patients in Bedfordshire for five years and is in the running to manage George Eliot hospital in Nuneaton.

Until the repercussions of this move are clear, Circle’s future is uncertain. 

Drug failure 

As Circle slumps, GW Pharmaceuticals (LSE: GWP) is charging higher today, after announcing yesterday that one of three Phase III cancer pain trials of its Sativex compound failed to meet its primary endpoint. After releasing the news yesterday, GW’s shares fell as much as 21% at one point but they quickly recovered and they ended the day unchanged. 

Even though one of GW’s trails has failed, the company still has two additional trials under way. If these trials yield positive results, GW would be able to submit a new drug application with the US Food and Drug Administration.

Furthermore, within yesterday’s update, GW said that all of its trials in its Epidiolex programme for treatment-resistant childhood epilepsies are on track. Phase III data from at least one of its trials now expected by the end of 2015.

Overall, even though one of GW’s trails failed to yield the desired results, the company still has plenty of irons in the fire. That being said, investors should keep in mind that only 7% of all new drugs successfully make it from the research and development stage, through to commercial production. So the odds are stacked against GW. 

Nevertheless, only you can decide if GW fits in your portfolio and I thoroughly recommend that you do some additional research before making a trading decision. And if you do decide to buy GW, or Circle, a basket approach will work best.  

The post Today’s Winner And Loser: GW Pharmaceuticals plc Pushes Higher As Circle Holdings PLC Slumps appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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