Glaxo a hold in choppy markets

Westbury; Datamonitor

The mighty GlaxoSmithKline, the UK's second biggest company and the largest drug maker in the world, cruises serenely through the choppy economic waters. Under the ship's motto – "enabling people to do more, feel better, and live longer" – captain Jean-Pierre Garnier is steering a steady course. He is now three-quarters of the way to his destination: 13 per cent earnings growth this year.

Results for the three months to the end of September were just as required, with its newest products headlining the growth story. Sales of the most recently-launched drugs hit £1bn in the quarter. Advair, launched in April as the latest treatment for asthma, has been particularly pleasing, helping sales of Glaxo's group of respiratory products grow 36 per cent to £871m. In all, revenues of £4.99bn were 13 per cent ahead of a year ago. Profit before tax was £1.3bn for the three months, and is up at £4.4bn for the year to date, some 17 per cent up on 2000.

For the time being, these victories outweigh doubts about the group's pipeline of new products. It is still not really clear where the next generation of blockbusters will come from. It was disappointing that a new diabetes treatment was pulled yesterday after failing clinical trials. And there was some eyebrows raised over the plan to plough £4bn into a share buyback scheme. Although the returns, in enhanced earnings per share, are greater than having put the cash in the bank, it did signal that Glaxo has no imminent plans for a big acquisition to fill its pipeline.

The merger of Glaxo Wellcome and SmithKline Beecham last year has produced a giant salesforce that is delivering the required revenue growth, while merger savings now estimated at £400m this year are helping too. On a multiple of 26 times this year's predicted earnings, after the shares fell 11p to 1,895p, the stock is fairly valued in line with its peers.

The stock has comfortably outperformed during the bear market, since demand for its products will remain afloat whatever the economic storm. If equity markets did bottom last month, then Glaxo could well see large numbers of shareholders jump ship to companies expected to gain from an economic revival. That counsels against buying the shares now, but they remain a core hold.

Westbury

The problem facing Westbury, the innovative housebuilder, is to convince a sceptical industry and City that its way of doing things is better. It makes its homes in a factory and then simply puts them together on site. This saves on time and labour, while the rest of the industry has a severe skills shortage.

Westbury eventually hopes to supply other builders with the kits.

Yesterday's interim results show that it is doing perfectly well. Pre-tax profit was up 10 per cent to £31.9m. Margins inched ahead to a healthy 14.5 per cent. The average selling price of its homes was up 14 per cent to £132,400.

The company's shares tickled up 5.5p to close at 237.5p, well off this year's high of 291.5p. Westbury was upbeat on the state of the housing market, with a strong first half and reservations at the moment running ahead of last year.

Williams de Broe sees full- year profits of £67.5m, putting the stock on a forward p/e of just 5. However, plenty of other housebuilders can be picked up on such cheap multiples, so why take on the added risks of Westbury's manufacturing and financing activities?

Datamonitor

For a market research firm with a reputation to defend, Datamonitor's own sales forecasts for the current year have proved worryingly wide of the mark. The group admitted yesterday that "challenging market conditions", particularly in services to the technology sector, have pushed back profitability by a year to 2003.

Sales this year are now expected to be £35m, where £40m had previously been predicted.

That compares with £31m in 2000, so top-line growth is still strong. The group has also mothballed product launches and introduced a hiring freeze in a bid to cut costs by 12 per cent and keep profits growing at a double-digit percentage. Clearly that is impressive in the current climate, and is thanks to Datamonitor's diversity of products. It researches for clients in healthcare and consumer markets, which are holding up, as well as the ailing technology sectors.

CSFB, Datamonitor's broker, suggests valuing the company on a multiple of sales and, on that basis, it is at a discount of around 20 per cent to its peers in Europe. That may seem unfair, given that the likes of Forrester have a bias towards technology research that will leave them with negative growth in the coming year. However, Datamonitor – for all its growth prospects – is a loss-maker with much still to prove. Down 5p to 70p yesterday, the shares are at the right level.