Perpetual is negative on the pharmaceuticals sector in Europe in the belief that its historic earnin...
Perpetual is negative on the pharmaceuticals sector in Europe in the belief that its historic earnings growth may be unsustainable.
John Surplice, European fund manager at the group, says the pharmaceuticals sector has tended to post earnings growth of 17% a year. He says the market consensus is that the sector is on target to achieve that this year but it may fall to 13% in 2001.
The sector has also been underperforming the main European market over the past 12 months. The Bloomberg Pharmaceuticals index has seen a rise of 10.39% in euro terms in the 12 months to 19 June compared with a rise of 35.77%, also in euro terms, over the same time period in the MSCI Euro index.
Surplice says: "The jury is still out on whether the historical growth rate of the pharmaceuticals sector is going to be sustainable. The sector is facing the problem of the pressure on government budgets and also pressure on cost bases. Drugs companies are facing a more difficult regulatory environment and are having to spend more on marketing their products to get the same sales."
Surplice does not hold any of the large European pharmaceuticals firms such as Roche, Aventis or Novartis on the back of his concerns about the sector. However, he does hold Irish drugs firm Elan, which has transformed itself from a drugs delivery company to producing its own drugs. This, he adds, means that the company can command a higher stock market rating.
Standard Life Investments is slightly overweight European pharmaceuticals although the group is concerned about valuations. Rory Adam, investment director, European equities at Standard Life Investments, says: "People had been seeing European pharmaceuticals as a safe haven when the technology sector was wobbling. Now these stocks are looking pretty fully valued which is making people nervous and these companies have not been performing quite as well as they had been doing."
Adam's favoured stocks include Aventis, which was formed last year from the merger between German pharmaceuticals firm Hoechst and French drug company Rhone-Poulenc. He says the company has started to deliver on cost-cutting, which is against market expectations as the management of Hoechst and Rhone-Poulenc have not been seen as particularly efficient. He adds that Aventis has a reasonable pipeline of drugs coming through as well as cancer and allergy drugs that have performed better than expected.
Adam also favours Novartis, which is seeking approval in the US for a drug to treat irritable bowel syndrome. Adam says the stock is likely to be upgraded if approval for the drug is attained.
Gartmore is favouring pharmaceuticals stocks including Danish firm Novo Nordisk. Stephen Rowntree, investment analyst, global pharmaceuticals at Gartmore says the company is spinning off its enzymes division to focus on its healthcare operation.
Gartmore also favours German drugs firm Schering which is benefiting from the success of a multiple sclerosis drug.
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