Herewith a somewhat retrospective look at why I purchased GSK in mid-November 2013.
In future, my intention is to produce investment cases before I buy the shares in question….
So what got me excited?
- ~4.5% dividend yield (rising to ~5% for 2014);
- Dividend cover 1.52x – not high, and based on adjusted EPS);
- P/E of 14.5x (FY13 est) vs 17x+ for FTSE100;
- 2014 P/E estimate: 1.4x.
- High margins;
- Patent-protected products (until they roll off);
- High barriers to entry;
- Growth from Emerging markets for prescription pharmaceuticals;
- Large firm capable of delivering pipeline of new drugs (Morningstar rates GSK as having the strongest biotech pipeline (Nov ’13).
- New drugs in pipeline do not transform into profitable products;
- Modest earnings growth;
- Further mis-selling scandals e.g. China;
- Litigation in developed markets.
- Dividend income with long-term growth potential;
- Pharma should be in my portfolio;
- Reasonable value.
Good foundation on which to start building the portfolio.
BUY 60 shares at 1,631.45p:
Stamp Duty: £4.89
Net Cost: £993.76 (1,656.27p per share)
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