It’s been a very busy week on the UK market with earnings releases from major companies
across the UK. We're going to take a very quick look at some of the key sectors that
reported this week. That's the pharmaceuticals sector, the energy sector and the communications
sector.
So, starting off with pharmaceuticals,AstraZeneca shares suffered after reporting a 28% drop
in earnings due to higher marketing costs. Morningstar expects the largely flat top-line
growth seen in the fourth quarter to reflect the firm’s growth prospects over the next
three years.
Trading at £46, much higher than our £34 FVE, the stock carries just one star, indicating
we thinks it’s overvalued.
GlaxoSmithKline’s results were largely in line with our estimates.
On the plus side, we like that it’s enjoying strength in its portfolio of branded drugs
and it’s becoming more competitive in the vaccine and consumer health businesses.
But on the downside, not only is the pricing environment deteriorating for its key respiratory
franchise, but we’re concerned that any slip ups in its vaccine or consumer health
businesses would probably lead to a dividend cut.
Trading just below our 1,510p, we think the stock is broadly fairly valued and so it carries
a 3-star rating.
In the energy sector, the main news from BP was its decision to slash its capital budget
to $20 billion this year in a move to prepare for oil prices remaining low throughout 2015
and beyond.
Morningstar believes that, quite frankly, 2015 is going to be a bit of a shocker for
BP, but its relatively strong financial position means its dividend is safe, in our view, and
its legal issues are manageable.
The shares are trading around a pound below our £5.75 fair value estimate, and so carry
a 4-star rating.
BG also cut its capital budget to $6-7 billion, while its earnings came in broadly in line
with our expectations, including operating profit down 36% partly due to lower commodity
prices.
Management guidance was a touch on the weak side, but our analysts believe management
may be erring on the side of caution having previously disappointed the market by failing
to meet its own guidance.
With shares worth less than £10, versus our valuation of £14, this is one of the few
stocks on the UK market that has a 5-star rating from Morningstar as we believe it is
significantly undervalued.
In the communications and telecoms sector, earnings news as well as M&A has dominated
the week.
Sky’s first-half results showed impressive subscriber growth, with strong growth in the
UK and Ireland in particular, and Germany, Austria and Italy.
Morningstar doesn’t expect subscriber growth to remain this strong, but we think Sky can
continue to expand its base regardless of what BT or other competitors continue to try
to harm it.
Shares responded well to the results, confirming our view that they’re slightly overvalued
compared to our valuation of £8.80.
BT was the best performer on the FTSE 100 on Thursday after confirming the details of
its deal to buy mobile network EE for £12.5bn in cash and shares.
We think the deal makes a lot of strategic sense, and though we expect it to take about
a year to get regulatory approval, we do expect the deal to go through.
A steep rise on the news took the share price well above our £3.17 fair value estimate
but we still think that’s what the shares are worth.
Last but not least, Vodafone shares fell 2% after reporting third-quarter sales that leave
the firm a bit behind the trajectory needed to meet our expectations for the full year,
but the trends are moving in the right direction.
The share price drop this week brought it closer to our £2.18 valuation, but we still
think it’s a touch overvalued.
That’s a quick look at the main market-moving news this week. For more news and Morningstar
analyst reaction, check out Morningstar.co.uk.
Thanks for watching.