As Traze Neca

8/10/2019 As Traze Neca

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University of Strathclyde

Department of Accounting and Finance

M.Sc. in Finance

2009/2010

Project 2:

Financial Analysis and Valuation of

ASTRAZENECA

(Ticker: AZN)

Thanh Le

Reg. Number: 200965398

Barry Koch


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Table of content

Abstract

Chapter 1: Introduction 1

1.1 The UK economic environment 1

1.2 Five forces Porter Model 2

Chapter 2: Financial performance and position of AZN 5

Chapter 3: Dividend policy 12

Chapter 4: Capital structure 17

Chapter 5: Valuation 22

5.1 Valuation approaches from theoretical to empirical evidence 22

5.2 Valuation of AstraZeneca share 26

5.2.1 Asset-based valuation 26

5.2.2 Discounted cash flow model 27

5.2.2.1 Dividend discount model 27

5.2.2.2 Free Cash Flow to Equity 29

5.2.3 Relative valuation 35

Chapter 6: Conclusion 39

References 41

Appendix 44


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List of Tables and Figures

Figure 1.1.1: GDP growth 1

Figure 1.1.2: UK Pharmaceutical Market Indicators 2

Figure 2.1: Development projects, new products and line extensions 5

Figure 2.2: ROE vs. ROCE year 20052009 7

Figure 2.3: Liquidity ratio 7

Figure 2.4: Cash conversion cycle days 8

Figure 2.5: Gross Profit Margin 8

Figure 2.6: Net Profit Margin 8

Figure 2.7: Cash conversion cycle day comparison 10

Figure 4.1: Leverage ratio comparison 18

Figure 4.2: Interest coverage ratio comparison 19

Figure 4.3: AZN share price performance 20

Figure 5.1.1: Phases in research and development in a pharmaceutical project 25

Figure 5.2.2.1.1: Dividend discount valuation 28

Table 1.2.1: Market shares of pharmaceutical companies in UK year 2007 3

Table 2.1 Profit and Loss Statement 6

Table 2.2: Liquidity ratio comparison 9

Table 2.3: R&D to sales ratio 10

Table 3.1 Dividend per share 12

Table 3.2: Dividend per share comparison 15

Table 3.3: Dividend yield 15

Table 5.2.1.1: Asset-based valuation 26

Table 5.2.2.2.1: Profit and Loss Statement Projection 31

Table 5.2.2.2.2: Balance Sheet Projection 32

Table 5.2.2.2.3: Free Cash Flow to Equity 34

Table 5.2.2.2.4: FCFE Valuation 34

Table 5.2.2.2.5 WACC, FCFF and PV of FCFF 35

Table: 5.2.3.1: P/E valuation 37

Table 5.2.3.2: P/B valuation result 37

Table 5.2.3.3: P/S valuation 37Table 6.1 Share performance 39

Table 6.2 Valuation results 40


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Abstract

The project requires me to analyse a UK companyit is AstraZeneca. I first start by

introducing UK economic condition at the moment and then analysing the

pharmaceutical industry in UK by employing 5 forces Porter. When understanding

the macro-economics, I am able to explain the situation of AstraZeneca better. In

the second part of this project, I address the financial position of AstraZeneca by

scrutinising Income Statement and Balance Sheet. I also use ratio to comment on

the improvement or the stagnation of the company in either time order or a

comparison with its peers. The ratios are profitability ratio, liquidity ratio and

operation efficiency ratio. Other ratios such as dividend yield, leverage ratio and

interest coverage ratio will be discussed in the next two chapters which are

dividend policy and capital structure. In these chapters, I will approach relevant

literatures and then put them into the context of AstraZeneca to understand the

prevailing dividend policy and capital structure. The next part is valuation which is

supposed to be very diverse with different valuation approaches. They are asset-

based, discounted cash flow, relative and contingent claim valuation. After review

relevant valuation literature, I will apply them to value AZN equity. This result will

be combined with other fundamental analysis to propose investment or divestment

in the conclusion part.


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CHAPTER 1: INTRODUCTION

1.1The UK economic environment

Before the financial crisis, GDP growth rate was quite stable but then it plunged

dramatically (Figure 1.1 can show this clearly). The negative growth rate is now

over; manufacturing output increased considerably 1.4% and total gross operating

surplus of corporations increased by 1.2%.

Figure 1.1.1: GDP growth

(Source: Office for National Statistics, 2010)1

However, there are some threats that should be paid attention to such as the high

trade deficit of 10.4 billion in Q1.2010; lower household expenditure rate (quarter

over quarter) coupled with the declining growth rate of distribution sector;

unemployment is still high at 7.9%. The situation likely drives a gloomy economic

condition in UK.

In such a situation, how far the pharmaceutical and healthcare will be affected?

Looking at the drug expenditure in 2008 2009 (estimated by BMI), I can see that

the expenditure in pound increased regardless of negative GDP growth. However, in

term of USD, the drug expenditure fell during the period 20082010 (as expected).

Nevertheless, the fall was not severe. The per capita drug market expenditure is

US$ 295 at least and expected to rebound.

It is very easy to find that when GDP declines, the ratio between drug expenditure

and GDP increase because the decreasing rate of drug expenditure is lower that of

GDP.

1http://www.statistics.gov.uk/cci/nugget.asp?id=192


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Figure 1.1.2: UK Pharmaceutical Market Indicators

(Source: United Kingdom pharmaceuticals & Healthcare Report BMI, Q2.2010)

It seems the economic contraction does not affect the pharmaceutical and

healthcare industry considerably. However, does it mean the superiority

characteristic of the pharmaceutical industry will last long? Does it also mean all

pharmaceutical business will be successful? In order to answer these questions, it is

necessary to employ 5 forces Porter to analyse the pharmaceutical industry in U.K.

By using this analysis and the forecast of BMI for each category of drugs, I will shed

some light on the future of UK pharmaceutical sector.

1.2Five forces Portermodel

Before approaching the model, it is crucial to have some understanding in drug

categories. There are some ways to distinguish drugs. In term of intellectual

property right, they divide drugs into patented and generic drugs. The generic is

a term for drugs with expired patents. It means drug producers can manufacture

this type of drug without paying the patent royalty. In term of prescriptive

requirement, they divide drugs into prescriptive and OTC drugs. With OTC drugs,

end-users can purchase drugs (or functional products) at drugstore and pharmacy.

Pharmaceutical Industry in UK - Porter's Five Forces Analysis

Rivalry

There are two local considerable famous producers which are GlaxoSmithKline and

AstraZeneca. There are also multinational companies such as Pfizer, Novartis,

Sanofi-Aventis, Merck & Co. In analysing the competition level in the

pharmaceutical industry, I use the ratio called Concentration ratio (in this case, I

1.24

1.26

1.28

1.3

1.32

1.34

1.36

1.38

1.4

1.42

0

50

100

150200

250

300

350

400

Drug market

expenditure as % GDP

Per capita drug market

expenditure (US$)


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consider the ratio market share)which is the sales of a company divided by the

overall sales of the market.

Table 1.2.1: Market shares of pharmaceutical company in UK year 2007

(Source: United Kingdom pharmaceuticals & Healthcare ReportBMI, Q2.2010)

From the table, although the market in UK seems to be dominated by Pfizer and

GSK, the market indeed is very competitive because of the participation of several

market players which are always willing to take over the leading position. For

example, some year ago, Merck and Co. has higher market share than AstraZeneca,

but now the former ranks No. 8 and the latter ranks No. 4.

Supplier power

Power of suppliers is not usually mentioned in pharmaceutical sector2.

Nevertheless, with the development of genetic treatment, the development can be

constrained by some regulation on organ donation as well as the willingness of

giving organs for clinical experiment.

2http://www.best-information.eu/international-marketing-strategies/Appendix-B.html
http://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://www.best-information.eu/international-marketing-strategies/Appendix-B.html


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Barriers to entry

The participation into pharmaceutical industry requires companies to meet certain

conditions such as obtaining patents for drug production, spending capital on R&D

activities and investing in marketing activities. All these require capitals as well as

the reputation of producers to promote their products. For this reason, the business

of existing companies can be safe to some extent.

Buyer power

Understanding the buyers can help to foresee the sales in the future of companies.

Doctors are in charge of writing prescription but hospitals (institutional buyers) and

other stakeholders (for example, the reimbursement entities) can influence the

distribution process. Consumers usually passively purchase the products. Therefore,

some announcements such as that the government expenditure in UK will rise at

lower rate in previous year can give a clue that the local sales cannot be as strong as

they were (BMI, 2010); or the plan of NHS in reducing the lengths of hospital stays

and cutting costs can affect negatively the domestic sales (BMI, 2010)

Threat of substitute

In studying the threat of substitution, I find that there are three drivers for this

issue. They are alternative therapy, the health awareness of customers and generic

drugs. The innovation in treatment can lead to a new therapy which consequently

dismisses the drugs for old therapy. Besides this, the higher awareness of health can

reduce the spread of diseases and this could be a threat for drug manufacturers.

Finally but noticeably, the invasion of generic drugs can sweep out the profit of

patented products. For example, in year 2009, the sales of several products of

AstraZeneca (Nexium, Casodex and Prilosec) declined significantly due to the

participation of generic drugs. With the encouragement to use generic drugs in

order to reduce reimbursement for NHS, the sales of UK pharmaceutical companies

can be affected in the future.

In short, the pharmaceutical industry is very potential but also risky; if producers

are still innovative and dynamic to invent new drugs and approach new markets,

they can be winners.


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CHAPTER 2: FINANCIAL PERFORMANCE AND POSITION OF ASTRAZENECA

Last year AZNs sales increased 3.8% yoy; this growth was driven by the increase in

cardiovascular products (25%), infection (10%) and neuroscience (10%). The rise in

cardiovascular products was because of the sales of Crestor into Germany and Spain

under an approval to let AZN distribute Crestor in Europe countries. Other pipelines

such as Toprol-XL (cardiovascular product), Flumist (infection) and Seroquel

(neuroscience) also contributed to the revenue increase. Pharmaceutical business is

very risky. The sales into a market depend not only from the approval of the health

authorities but the efficacy of drugs. In year 2009, AZN was nearly stuck in a lawsuit

when lawyers sued AZN that it tried to hide the link between using Seroquel and the

side effects of gaining weight and causing diabetes. Even the sales on Seroquel in

year 2009 grew by 12% yoy, the cost to settle the lawsuit was 520 million US dollars.

By analysing both sales segment and AZNs strategy, I realise that the company has

been aiming at the emerging markets. The sales from these markets accounted for

13% of total revenue; last year the sales increased by 12% yoy (excluding the loss in

currency translation). If AZN can manage its currency translations loss, the emerging

markets are very promising.

In year 2009, the R&D cost noticeably decreased by 14.9%; this is because of both

the cost control efficiency and the lower costs due to some experiments having

entered the later stages of research.

Figure 2.1: Development projects, new products and line extensions

(Source: AstraZeneca Annual Report 2009)


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The following percentage table once again can help to see the good performance of

AZN in year 2009. The bottom line shows that the net profit margin rose

significantly last year. From the table, I can conclude that they are COGS and R&D

expenses improving the bottom line year 2009.

Table 2.1: Profit and Loss Statement

(Source: AstraZeneca Annual Report 2009)

Employing ratio analysis, I will follow the trend of numbers in time order as well as

in peer group. The ratio analysis includes profitability, liquidity and efficiency ratios(financial structure and dividend ratio will be analysed in chapter 3 and 4).

Firstly, from the below figure, I see that the ROE looks flat meanwhile the ROCE

roughly changes overtime. The ROCE noticeably dropped in year 2007; this is

because of the issue of corporate bonds (9 billion US dollars) to finance the

acquisitions of MedImmune and Cambridge Antibody Technology. These units focus

on infection drugs. Hopefully, the sales of infection drugs start compensating the

cost to acquire the entities. In year 2008, infection drug sales increased 41% yoy

and continued to rise by 10% year 2009 (excluding the currency translation loss). It

means the financial structure strategy of AZN is pretty efficient.


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Figure 2.2: ROE vs. ROCE year 2005 - 2009

The second ratio that I focus is the liquidity ratios which include the current ratio

and quick ratio. These two ratios looked very good in year 2005 and 2006 but

suddenly fell in year 2007 due to high amount of short term borrowings and higher

income tax payables. The short term borrowings initially financed the acquisition

and after issuing bonds, AZN used proceedings to refinance the overdraft.

Figure 2.3: Liquidity ratio

Last year, both the current ratio and quick ratio increased. This is because AZN

starts generating cash from its infection and cardiovascular pipeline. At the end of

year 2009, AZN held 10 billion pounds in cash and cash equivalent account. This

helps to guarantee the repayment ability of AZN. Nevertheless, in the following

part, I will compare this result with that of other peers so that I can see the

soundness of the business strategy of AZN.

For the working capital analysis, first of all, I notice that the company changed its

way in recording trade receivable. In year 2008 backward, AZN combined the credit

amount from suppliers and the price rebates & chargeback. But price rebates and

-

10.00

20.00

30.00

40.00

50.00

60.00

2005 2006 2007 2008 2009

ROCE

ROE

-

0.50

1.00

1.50

2.00

2.50

2005 2006 2007 2008 2009

Current ratio

Quick ratio


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chargeback relate to distributing drugs. Thus, it is inappropriate to combine it. For

this technical adjustment, I can only analyze the working capital cycle for last 3

years.

The longer the cash conversion cycle day (CCC days) turns out, the higher cost a

company has to bear. In year 2009, the CCC days continued dropping upon the

better trade credit balance versus moderate increase in inventories. Similar to

above part, it will be insufficient to comment on the efficiency of working capital

management if I only analyse AZN. In the following part, I will compare these results

with AZNs peers.

Figure 2.4: Cash conversion cycle days

Using data from GlaxoSmithKline (GSK), Pfizer Group and Abbott, I calculate the

Gross Profit Margin (GPM) and Net Profit Margin (NPM) as follows:

Figure 2.5: Gross Profit Margin Figure 2.6: Net Profit Margin

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2007 2008 2009

Stock holding period

(days)

Debtor Payment

period (days)

Creditor Payment

Period (days)

CCC days

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009

GSK

AZN

Pfizer

Abbo

0%

5%

10%

15%

20%

25%

2006 2007 2008 2009

GSK

AZN

Pfizer

Abbott


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own strategies as long as the companies still have sufficient capital to finance their

stocks, sustain good profit marginand generate enough cash to run their business.

And of course AZN satisfies these criteria; therefore, I can conclude that AZN

inventories level is sound and effective.

Using the cash conversion cycle days to measure the efficiency of working capital

management, I once again can see the superior of AZNs working capital policy in

recent years.

Figure 2.7: Cash conversion cycle day comparison

For pharmaceutical sector, it is important for analysts to consider the ratio R&D to

sales because it will give information about the inventiveness of the companies.

Table 2.3: R&D to sales ratio

(Source: Annual reports of AZN, GSK and Pfizer)

Comparing to GSK and Pfizer, the R&D to sales of AZN is lower in 2009 but higher in

2007. Actually, the changes in R&D to sales depend on the accounting policy which

determines what kind of R&D costs will be expenses in a year. Thus, the R&D to

sales is not really precise, but at least, looking at the ratio of AZN, GSK and Pfizer, I

can see that these three companies likely have the same R&D investing pace.

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50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

2007 2008 2009

GSK

Pfizer

Abbott

AZN


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Conclusion:

All the financial data shows that AZN has improved its business significantly this

year. This is because the company has a right strategy to launch some products into

new markets. The data also shows AZN outperform most of its peer in term of profit

margin and working capital management. The result implies that AZN is a promising

company. The following part, I will address the dividend policy to understand

whether a good company like AZN can attract investors with its dividend policy or

not. And the chapter after that, I will address the capital structure which will give in

insightful analysis about the change in risk appetite of managers so that I can

explain better the good performance last year and forecast the potential of AZN.


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CHAPTER 3: DIVIDEND POLICY

According to the Annual Report 2009, AZN Board of Management stated that they

would pay cash dividend regularly and possibly use share re-purchase when

needed. The company establish a progressive dividend policy which is also applied

by GSK. For this type of strategy, companies tend to sustain or increase the dividend

every year. AZN also declared that they would pay out 50% of its reported earnings.

After reinvesting the business, paying dividends, repaying debts, AZN also consider

to purchase shares back.

AZN has followed its policy closely; the following table will show their dividend

payment for last three years.

Table 3.1 Dividend per share

(Source: AstraZeneca Annual Report, 2009)

The question is that whether the dividend policy of AZN is reasonable or not. Why

does the Board of Management of AZN decide to adopt this type of policy? In order

to answer these questions, I review some literature about dividend (cash and share

purchase) then comment on the policy of AZN.

Miller and Modigliani (1961) showed that dividend payout policy did not affect the

firm value. Nevertheless, Ang and Ciccone (2009) conveyed some recent researches

to conclude that the irrelevance theorem is hardly applicable in practice. This is

because MM had limited tools to analyse the effects of dividend policy fully at that

time and their assumptions are now unrealistic.

As mentioned above, the financial world is imperfect and the irrelevance theoremwould be weakened if the free tax assumption is relaxed. The effect of tax on

dividend (also know clientele effects). Nevertheless, Saadi and Dutta (2009)

emphasized that most of research figuring out the relationship between share price

and tax rate but does not mention the effect of taxes on dividend policy.


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Mueller (1972) introduced a theory about life cycle of firms. Bulan, Subramanian,

and Tanlu (2007) found that companies tend to reduce their dividend when they

reached the maturity stage in the life cycle. Bulan (2009) concluded the relationship

between dividend policy and the choice of capital structure in different stage of a

life cycle by comparing the ROE with the cost of capital k. If the ROE is greater than

k, companies should not pay out dividend; otherwise, they should pay out dividend.

Butan (2009) also suggested that the change in dividend policy can signal a

transition in company life cycle.

There are two types of dividend policies including residual dividend policy and

managed dividend policy. Smith (2009) discussed that although it sounds

reasonable for companies to adopt a residual dividend policy so that the companies

can use their financial resources efficiently, managers still prefer a managed

dividend policy. Smith (2009) also stated that company using private bank loans

tend to use the residual dividend policy meanwhile those using public issue to raise

capital normally choose a managed dividend policy.

Employing catering theory of dividend, Rooij and Renneboog (2009) concludes that

the firms would consider the preference of investors a factor to determine the

dividend policy. The choice is between dividend-paying companies and non-

dividend paying companies. In addition, it is different from sectors to sectors and

from countries to countries, the catering theory will be considered differently.

Lintner (1956) discussed how the market price of stock moves upon changes in

dividend payout, this theory is then called the signalling theory of dividend. The

theory showed that conventionally the dividend will convey a signal of a future of

the company business and cash is a certain return, thus, it is difficult to manipulate

the benefit to investors. Nevertheless, Verminnen (2005) indicated that Telefonia

cut its dividend and invest this amount of money into a project in Latin America and

ultimately gain big success. There are many other researchers who showed that

there is possible success for companies cutting dividend. Filbeck (2009) conveyed

the researches of Healy and Palepu (1988), DeAngelo, and Skinner (1992); Benartzi

et al. (1997) and John, Lang, and Netter (1992), Iqbal and Rahman (2003) to


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conclude that cutting dividend together with some restructuring activities can help

to boost the earnings in the future; authors also find that if the cut in dividend with

no improvement in operation afterward would signal a bad future for earnings. It

means the application of signalling theory should be flexible.

Mukherjee (2009) discussed the agency cost which is a determinant of dividend

policy. He conveyed the research of Allen and Michael (2003) to conclude that the

dividend policy is to prevent managers from overinvesting in low profitable

projects. This is because the shareholders always have higher risk appetite than

managers do. Managers therefore tend to investment into low profitable projects

to be safe and also to beat the target so that they can gain bonus. Mukherjee (2009)

also employed Meggisons paper (1996) to come up with the popularity of using

agency theory to explain the dividend policy at the moment.

From the above literature, I think it is necessary to look at AstraZenecas life cycle

with regard to investment opportunity, the ability to reach financial resources when

needed, the dividend policy of rivals, and corporate governance in relation to

agency problem.

James (1973) clearly indicates that the life cycles of pharmaceutical companies vary

with inventiveness and the expiration of patents. It means as long as the company

still sustain its R&D activities, company can still grow or sustain its maturity. The

R&D activities of AZN are promising; at the moment, they have 103 clinical projects.

Besides this, in 1999, 55% of sales are threatened by patent expiry, and last year

approximately 50% of sales are threatened by the situation. It means AZN is

successful at innovating new products. With the aging situation in developed

countries and the increasing income for health care service in emerging markets,

AZN has a huge market to serve. It means the policy with dividend payout 50% of

profits can balance the demand of investing into new projects and the cash return

demand of investors.

Allen, Chui and Maddaloni (2004) indicate that UK financial market is mixed

between market-based and bank-based system. It means public companies like AZN

can raise capital from either banks or capital market. And it is fact that AZN


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successfully issued bonds to acquire MedImmune and Cambridge Antibody

Technology. Thus, it is not necessary for AZN to pay low dividends in order to create

a financial slack for future investment. The dividend policy of AZN which is a

managed dividend policy again seems to be right under the above findings of Smith

(2009).

As mentioned above, investors will choose companies with better dividends. The

following table will show the relevant data about dividends:

Table 3.2: Dividend per share comparison

(Source: Financial Statement of GSK, AZN and Pfizer)

Table 3.3: Dividend yield

(Source: Annual Report of GSK, AZN and Pfizer)

The tables can show that even AZN pays higher dividend per share than GSK does,

the dividend yield of AZN is still lower than that of GSK. Therefore, AZN needs to

increase its dividend yield. Thus, it is reasonable when AZN has plans to sustain its

high payout ratio and buy back its shares valued $1bn in this year. In addition, the

GSK dividend policy shares the same trait with AZN policy which is progressive

dividend policy. For this reason, it is reasonable for AZN to increase its dividend

every year to catch up with its rival.

The final considerable issue is corporate governance issue and the agency problem

in AstraZeneca. In year 2009, PIRC (Pensions Investment Research Consultants Ltd)

in UK points out that AZN gives lots of money to U.S politicians and its senior


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executives3. Thus, paying high dividends will help to reduce the pressure from

shareholders.

In conclusion, I think management team of AZN adopts a sound dividend policy to

meet the demand of investors and sustain its growing business.

3 http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-

pay-too-high-spends-too-much-on-lobbying/
http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/


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CHAPTER 4: CAPITAL STRUCTURE

BrealeyMeyers (2003) defines the capital structure a combination of different

types of securities. The selection of securities will help to maximize the market

value of a company. The market value of a company obviously relates to returns to

stakeholders, cost of capital, taxes and bankruptcy cost. A CFO needs to decide a

capital structure to optimize the returns and costs. Theoretically, Brealey-Meyers

(2003) also convey the study of Miller and Modigliani (1958) and in order to point

out that the optimum capital structure is the point at which the firm value is the

highest and the tax benefit starts being eroded by the bankruptcy cost. This is called

Trade-off model. It means a company should have an ideal leverage level.

On the other hand, Graham and Harvey (1999) discuss Pecking Order Theory

which does not target a debt ratio. Brealey (2003) lists some implication such as

firms have a selection hierarchy of financing methods. In particular, the first choice

will be internal funding which is closely relevant to dividend policy. The second

choice can be debts, and followed by some hybrid securities (convertible bonds,

preference shares) and final choice will be common equity. The theory can explain

why high profitable companies have smaller debts, it also explain the balance

amongst internal cash flows, dividend paid and investment opportunities. If

companies are profitable, they will reduce their borrowings; and if they have more

investment opportunities, they need borrow additional money. By tracing the

growth of an industry, people can see how companies in that sector need to re-

invest into their business. In order to catch up with peers, some low profitable

companies need borrow relatively high amount of money. There is a supporting

evidence for this theory, Myers and Majluf (1984) find that share prices go down

when companies issue shares rather than using debts. In order to avoid this,

managers decide to have a financial slack to retain earnings for future investment

opportunities.

Ross (1977) discusses the signalling capital structure theorywhich points out that

the managers will receive a reward in term of an increase in companies market


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values when managers show that they can repay debts and generate big cash flows.

All these outcomes would be signalled through the choice of capital structure.

In practice, the above literature will be different from countries to countries and

from sectors to sectors. Brounen, Jong, Koedijk (2006) find that the trade-off model

has moderate effect on the capital structure decision in 4 Europe countries

including UK, France, Germany and Netherlands. In addition, they also realise that

financial flexibility is important for CFOs to determine the level of debts; and this

factor is not affected by the pecking order theory. The researchers also find that in

UK, CFOs pay attention to the share prices which are driven by diluted EPS as a

consequence of share issues. For the signalling theory, the researchers do not find

enough evidence to support this theory in 4 selected countries.

From the above literature, I will comment on the capital structure policy of AZN for

recent years. I will start comparing the leverage ratio and interest coverage ratio.

As mentioned in the above part, before 2007, AZN had very low borrowings which

were only $1 billion; then the acquisition led AZN into relatively high debt level

comparing to some other companies like Pfizer and Abbott. However, if looking at

GSK leverage ratio, AZN seems to be relatively conservative in their capital structure

strategy. In year 2009, the debt ratio of AZN was approximately equal to that of

Pfizer and Abbott and nearly a half of GSKs debt ratio.

Figure 4.1: Leverage ratio comparison

(Source: Data from GSK, AZN, Pfizer and Abbott Annual Report)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

2006 2007 2008 2009

GSK

AZN

Pfizer

Abbott


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As the leverage ratio changed radically in 2007, the interest coverage ratio of AZN

dropped significantly from 123 times to 25 times. Nevertheless, looking at the

below chart, I can easily find that regardless of higher debt level, the interest

coverage ratio of AZN is the best amongst 4 companies.

Figure 4.2: Interest coverage ratio comparison

(Source: Data from GSK, AZN, Pfizer and Abbott Annual Report)

Even the current financial structure of AZN looks very reasonable comparing to its

peers. I still try to find what reasons drive AZN management team change its capital

structure which was heavily relied on equity into the one with higher leverage. I also

try to figure out what drove AZNs management team to adopt new capital strategy.

In year 2007, the acquisition decision came up very quickly; AZN used the

committed banking facility to finance the deal valued $15 billion. As observed, the

share price before the announcement of acquisition was declining as AZN had failed

its stroke drug trial (Oct 2006, Reuters) and its heart drug trial (Mar 2007).

Moreover, the acquisition itself had been criticised by many analysts about its

contribution into the bottom line of AZNs Income Statement (But the deal could

pay off five or 10 years in the future, Amusa4). The return of this investment had

probably seen by AZN executives and it would be difficult for them to persuade

investors to exercise a right upon a new share issue. In the meantime, the leverage

ratio of AZN was too low. For these reason, using up their committed banking

4http://money.cnn.com/2007/04/23/news/companies/astrazeneca/index.htm

23

123

28

6

2006 2007 2008 2009

GSK

AZN

Pfizer

Abbott


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facility to buy MedImmune seems to be a very wise decision. This new strategy can

clearly explained by the flexibility of credit as found above. And the decision would

not drive AZN into high risk of financial distress because comparing with its peers

the leverage ratio was not too different.

Figure 4.3: AZN share price performance

(Source: Bloomberg, as of 30 July 2010)

In term of financial distress issue, Passov (2003) says that pharmaceutical

companies have big intangible assets which are difficult to be valued; thus, these

companies are exposed to high risk of bankruptcy if they dont have enough cash to

meet its contingent demand. This drives a very typical capital structure of

pharmaceutical companies with relatively lower leverage ratio comparing to those

in other sectors. As mentioned about, the financial leverage of AZN after

restructuring looks similar its peers such as GSK and Abbott. Thus, the possibility for

AZN to get into bankruptcy with their financing decision was relatively. And as

known, AZN issued bonds in U.S to refinance its acquisition, at that moment, AZN

creditworthiness was rated stable (A1 by Moodys and AA- by Standard and

Poors5). This can also help to explain the trade-off model had taken effect into the

5http://www.fiercebiotech.com/press-releases/press-release-astrazeneca-launches-and-prices-6-9-

billion-bond-issue


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capital structure of AZN because the management team might have taken into

account the bankruptcy cost into their capital restructuring decision.

In short, the capital structure decision of AZN management team looks sound and

the company would not face trouble with this capital structure.


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CHAPTER 5: VALUATION

5.1 Valuation approaches from theoretical to empirical evidence

Hitchner (2003) says business valuation relates to the procedure of valuing the

enterprise or the ownership interest of that entity. There are several valuation

approaches. In particular, Graham and Dodd (1934) introduce the asset-based

valuation method. In addition, Damodaran (2002) outlines the purposes of valuation

including the portfolio management, acquisition analysis and wealth maximisation

in corporate finance. He also mentions three types of valuation approaches

including discounted cash flows valuation, relative valuationand contingence claim

valuation. Thesefourapproaches can be employed together at the same time. The

following part, I will try to describe concisely each method, then evaluating the

equity value estimation accuracy of each approach. This analysis in turn will lead to

the selection of valuation model to value AstraZeneca equity.

For the asset-based valuation method, the assets and liabilities are assigned fair

values and the equity value is calculated by subtracting liabilities from assets. In

calculating the fair value, analysts take into account the liquidation costs and

replacement costs which are quite difficult to be assessed.

About the discounted cash flow method, William (1938) introduces the mechanic of

valuing stocks by employing the following formula:

From this model, many researchers develop different versions such as dividend

discount model (Miller and Modigliani, 1961), free cash flows, residual income

model (Marshall, 1890). The differences amongst these models are the type of cash

flows. For dividend model, CF will be dividend paid out; the free cash flow model

takes into account the cash flow belonging to shareholders regardless of the

amount of money partially retained in the business. The residual income model uses


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book value, earnings, returns on equity and cost of capital to calculate the equity

value.

The formula can show that value of equity equal current book value of equity plus

the present value of abnormal earnings.

About the third valuation approach, Stowe et al. (2002) list some main model for

the relative valuation such as relative earnings valuation model, relative revenue

valuation model, relative cash flow valuation model and relative asset valuation

model. This method is based on an estimated average ratio in an industry; the

analysts then will work out the fair value of shares by using relevant individual

input data.

The last valuation approach, contingence claim valuation, is meaningful to value

companies of which patents matter the business (Damodaran, 2002). The idea is

based on option valuation originally developed by Black and Scholes (1972).

Nevertheless, Damodaran (2002) points out that it is difficult to value the option of

a non-traded asset. If the drug patents are not traded, it will be difficult to employ

this type of valuation.

There are some researches trying to compare these approaches. Kaplan and Ruback

(1995) find that both discounted cash flow valuation and comparative approach can

estimate the market value. Nevertheless, Berkman, Bradbury and Ferguson (2000)

point out that the methodology of Kaplan and Ruback (1995) is rather subjective. In

particular, the companies in their researches are those engaging in leveraged buy-

out transactions. For such companies, the cash flows are rather stable. In addition,

Kaplan and Ruback (1995) use companies cash flows rather than equity cash flows.

Berkman, Bradbury and Ferguson (2000) argue that the firms cash flows are more

stable than equities cash flows. The group of researchers also figure out that

Kaplan and Ruback (1995) do not choose the market value but they use the over the

counter prices of researched transactions; and Kaplan and Ruback (1995) conduct

their research with a seriously wrong assumption that the companies growth rate


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and their terminal values are independent. This assumption has been criticised

heavily by Berkman, Bradbury and Ferguson (1998). Regardless of many fallacies,

the result from Kaplan and Ruback (1995) research is still compatible to the recent

research of Berkman, Bradbury and Ferguson (2000). Berkman, Bradbury and

Ferguson (2000) use 45 companies in Auckland to compare the accuracy of two

approaches which are discounted cash flow and comparative. They find that there is

little difference between market-based discount cash flow model and market based

P/E model. In their papers, they also mention that the market-based model is

superior to the industry based model. The research of Berkman, Bradbury and

Ferguson (2000) seems to be persuasive but in fact the researched sample is just

limited in New Zealand market and in order to be listed new companies need to be

profitable for couple of years. It means that Berkman, Bradbury and Ferguson

(2000) paper also has some estimation biases. Froidevaux (2004) finds that the

discounted cash flow model can recognise the mispricing of shares by using data of

1,600 companies from U.S market during 19932002. He also finds that there are

few mispricing cases in consumer cyclical sector but many cases in technology

industry. It means the consistency between discounted cash flow and relative

approach can be different from industry to industry. Schreiner (2007) uses data of

600 European companies from 19962005 and finds that there are superior set of

multiples attaching to some specific industries. For example, Schreiner (2007)

shows that generally the two year forward P/E outperforms the trailing P/E. He also

points out that different industries will be have different best ratios, for example,

the best ratio can be trailing P/E in one industry but not that best in another sector.

Schreiner (2007) also employs fundamental valuation to determine intrinsic

multiples to strengthen his analysis. From these results, I think using cash flow

valuation approach to find fair value of firms is more reliable for some industries

with high volatility of cash flows.

Examining the role of asset-based valuation, Vardavaki and Mylonakis (2007) use

data from UK foods retail firms, and they find that asset-based valuation can explain

better than earnings model. And the combination of two models will be the best to


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estimate the firm value. Although the sample is very subjective, the result is still

considerable to evaluate the usefulness of asset-based valuation model.

For the contingence claim valuation, Kellogg and Charnes (2000) uses one company

to illustrate the possibility of using Real option valuation. They find that it is possible

to value biotechnology by taking account the option in some phases, such as before

phase II and after phase II of the R&D projects. Martn and Fernndez (2006)

confirm this result with a wider sample with more European firms. The result also

shows that it will be more reliable if analysts take into account value from real

option valuation model. However, Martn and Fernndez (2006) also accept that the

accuracy of this method is not really high. In addition, Hartmann and Hassan (2006)

also employ real option valuation method to value pharmaceutical R&D projects.

They find that the real option valuation method cannot replace the NPV approach

which is also a type of discounted cash flow valuation. It is also difficult to

standardise the valuation method because cases are complicated and distinguished.

Figure 5.1.1: Phases in research and development in a pharmaceutical project

(Source: EFPIA 2003)

In short, there are several ways to value equities; analysts can conduct all methods

because they are not mutually exclusive. Nevertheless, the discounted cash flow

valuation should be done for most cases. In addition, because each method has

different choices; analysts find it difficult to do all valuation. The selection of some

good methods to do will help to reduce working time.


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In the following part, I will apply different models to value AZNs equity; during this

valuation process, I also put some discussion over the assumptions and the

suitability of each model in valuing AZNs share. Nevertheless, I shall not use the

Contingent claim valuationbecause I am unable to assess the possibility of success

of each drug development project of AZN.

5.2. Valuation of AstraZeneca share

5.2.1 Asset-based valuation

In this part, I will use the data in year 2009 end of AZN to calculate fair price for a

stock. I make some assumptions for my calculation such as the value of assets and

value of liabilities in the balance sheet is fair value. It means I assume the

liquidation cost and replacement cost are zero; it also means the value of debts (or

other marketable liabilities) is unchanged.

Table 5.2.1.1 Asset-based valuation

Looking at the result of asset based valuation approach; people can think this

company is overvalued at the moment. Nevertheless, Vardavaki and Mylonakis

(2007) indicate that this model is suitable to companies with high fixed assets and

using simple technology. This model is not appropriate the biotechnology because it

will omit the knowledge assets which are R&D investment, drug invention,

development and distribution (Rasmussen,2007) and some intangible which is

unrecorded goodwill. In this valuation sheet, I did include R&D investment but I

believe this amount of money cannot reflect the huge return in the future when a

drug development program is successful. Vardavaki and Mylonakis (2007) also


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criticise that the method also does not include any expected future residual income

which is likely big for the very potential pharmaceutical company like AstraZeneca.

5.2.2 Discounted cash flow models

5.2.2.1 Dividend discount model

Domadoran (2002) says that there are 3 dividend discount models including Gordon

model, two-stage and three stage dividend discount model. The Gordon model is

suitable to companies with stable dividend payout policy; and normally the

companies have stable growth rate which is approximately equal to the growth rate

of the economy where the companies do business. Two stage and three stage

models relate to some fast growing period; after that period, the growth rate of

dividend will be sustainable. The multi-stage period is applicable to some

companies which are engaged in patent issue or market barrier for some period of

time. These attributes fit AZNs characteristics. For this reason, I adopt the multi -

stage model to value AZN share. Nevertheless, it is still tricky to choose between

two stages and three stages. However, the selection is now subjective because

there is no strong support to decide which model is suitable. Therefore, I adopt the

two stage model for my valuation.

When choosing two-stage model, I need deal with some conventional puzzles which

are the length of the high growth period; the sustainable growth and rate of return

on equity. Different from other business, the pharmaceutical companies do not

have specific life cycle (James, 1973); and the selection of high growth period only

comes from the valuation practice at the moment, i.e. 5 year forecast. During this 5

year period, I do not apply a constant growth rate but instead extract the dividend

from my 5 year forecast Profit and Loss Statement coupled with the payout policy

of the company. About the sustainable growth rate, it is not easy to compute by

using this formula: g = b x ROE (where b (retention rate) and ROE are sustainable). I

therefore use the guidance of Damodaran (2002) that suggests the sustainable

growth rate should be approximately equal to relevant GDP growth rate, in this case

UK GDP growth rate. I chose the average GDP growth rate in UK from BMI report

(Q2.2010) to compute g. The average GDP growth rate is 2.66%.


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In calculating the discount rate (r) which is rate of return on equity, I use the CAPM:

RjRf = (E(Rm)Rf) +

Market proxy: FTSE 100 Index

Securities: Astrazeneca stock in LSE

Risk free asset: UK Treasury Bond 30 years.

Using the market return and return on risk free asset (for weekly and monthly) for

10 years (from 2000 to 2010), I obtain two different models:

Weekly:

RjRf = 0.0006 + 0.858 (E(Rm)Rf) with R-square = 35.74%

Monthly:

RjRf = 0.0028 + 0.8259 ((E(Rm)Rf)) with R-square = 39.71%

I choose the beta of 0.8259 because the R-square is better. Then I come up the rate

of return on equity:

Annualised Rf = 4.750%

Annualised E(Rm) = 21.8%

Rj = 18.80%

The question now is whether I can use Rj (cost of equity) for sustainable growth rate

period? Revisit the formula:

r =

+ g

Given the sustainable g of 2.66%, the

is the dividend yield; and in the long

term, the dividend yield should be stable as the increase in dividend will lead to

higher stock price and vice versa. Deriving a sustainable dividend yield from

historical data, I came up with a yield of 3.4%. Thus, the sustainable r will be 6.06%.

Figure 5.2.2.1.1: Dividend discount valuation

Po = US$ 52.33


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5.2.2.2 Free Cash Flow to Equity

Damodaran (2002) introduces some types of Free cash flow to equity (FCFE)

model which is similar to Dividend discount model but the cash flow will be the

free cash flow to equity rather than dividend.

As there are also constant growth model, two-stage and three-stage earnings

model. I use the two-stage earning model with the same explanation in the dividend

model. In order to reach the FCFE, I need to forecast the Profit and Loss Statement

as well as the Balance Sheet. I do make several assumptions to build up a model.

The assumptions are based on both random walk and average basis whenever

applicable. (See the following pages for Income Statement and Balance Sheet). For

the first 5 year (stage 1), I assume a growth rate of 6.9% (same with growth rate in

year 2009), other items in Income statement is calculated as the same as the

percentage over revenue in year 2009 except the interest expenses which is

calculated by using the borrowing and repayment during the period. The capital

expenditure is based on the historical data and I use average number of the recent

years. The non cash working capital is based on the average working capital cash

conversion cycle days in last three years. The terminal price which is calculated as

follows:

In which sustainable g can be calculated similarly in dividend discount model part.

As the g in long run equal to GDP growth rate, and g = b * ROE; given the adjusted b

(which is now known as reinvestment rate) = 47.68%, the long term ROE = 5.3%. It

means the investment will reduce the value of the company. This is understandable

because in long run the abnormal ROE at the present will decline so that the g will

be equal to GDP growth rate. Because I use two-stage model, I also employed two


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cost of equity. The rate is similar to the rate that I applied in dividend discount

model. The first stage discount rate is 18.8% and the second stage discount rate is

6%.

Using this model, the intrinsic value of a share is US$ 64.12.


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Table 5.2.2.2.1 Profit and Loss Statement Projection


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Table 5.2.2.2.3: Free Cash Flow to Equity Table 5.2.2.2.4: FCFE Valuation


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From the FCFE, I can calculate Free Cash Flow to Firm (FCFF); and with the

calculated WACC, I derive the firm value of AZN.

FCCF = FCFE + Interest*(1-tax rate) + Debt repaymentNew debt borrowing

WACC is calculated as

WACC = Cost of debt*(1- tax rate)*weight of debt + Cost of equity * Weight of equity

For first 5 year period, I use the cost of debt applied for AZN (as stated in Annual

report), for long term cost of capital, I use the g = b * ROCE where g is sustainable

growth rate which is 2.66%, b (reinvestment rate) is 47.67% (for FCFE) which is now

applied for FCFF. ROCE = 5.58%.

Table 5.2.2.2.5 WACC, FCFF and PV of FCFF

From this result, I calculate a value of operating asset of firm = US$ 155,576 million.

5.2.3 Relative valuation

In this part, I use P/E, P/B and P/S multiplier to calculate the fair value of shares.

This valuation is based on assumption that the market could price stock wrongly but

will correct this mistake in the future. In addition, there are also implicit

assumptions when analysts choose stocks to create market multipliers. In particular,

the selection is very subjective and some analysts do not adjust relevant items on

Income Statement or Balance Sheet to make companies comparable. Amongst 4

companies (AstraZeneca, GlaxoSmithKline, Pfizer and Abbott), I find that the first

two use IFRS accounting system and the remaining ones use US GAAP. Although the

IFRS and US GAAP have certain differences, I find that the overall accounting

policies of 4 companies are not really divergent. In particular, I find that there are

just some clear differences such as the number of years applied for depreciation,

inventories costing method (AZN uses either First-in First-out; Abbott use average


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cost or market price, Pfizer uses average cost), the clarification of capitalisation of

in-process R&D cost, internal R&D cost.

Even companies using same accounting system, it does not mean that the sales,

earnings and book value of them can be comparable. This is because the existing

accounting systems (both IFRS and US GAAP) allow certain flexibility which helps

managers to manipulate the statements. In particular, the sales can be adjusted

deliberately if companies estimate a higher rebates or chargeback. In addition, for

the provision, it is possible for managers to decide to expense the provision upon

certain clues. If it is case, the expense items on Income Statement will be distorted.

The non-recurring items also concern the comparability of earnings; for some cases,

it is very easy to adjust these items (for example, companies sell their assets) but

some cases such as the financial losses, it is difficult to assess whether the loss is

recurring or non-recurring. For the book value, the decision to record the cost of

intangible assets such as internal generated intangible assets can make the book

value less comparable.

In order to make the sales, earnings, and book value comparable, it is necessary to

adjust the relevant items. There are some ways to carry out the adjustments such

as removing the non-recurring cost and income, adjust the length of depreciation

and amortisation, use the items which cannot be materially manipulated to

compare.

In this project, I dont adjust the earnings because the non-recurring items (such as

discontinued operation profit is not significant); in addition, I also dont adjust the

sales and book value because there are too many assumptions about rebates,

chargeback, provision and fair values. The following valuation result is for reference

and will be more reliable if it is combined with other valuation method results.

In order to estimate the fair price of shares, I need to calculate the multipliers which

are the average historical ratios of 4 companies.

Price-to-earnings ratio (P/E):

There are three types of P/E ratios which are historical P/E, trailing P/E and forward

P/E. The differences amongst them are the earnings employed in the ratios. In


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particular, the earning will be last year earnings, last 4 quarter earnings and this

year earnings in the above mentioned order. Investors care forward P/Ethe most

because they want to know the price of share with regard to the earnings in the

future. The earnings come from the forecast Income Statement that I have done

above. The valuation result is as follows:

Table: 5.2.3.1: P/E valuation

As the forecast earnings are $7,242 million, the projected outstanding shares are

1,418 million shares, the EPS is 5.107 and the price at the end of year 2010 would

be 11.91 x 5.107 = US$ 60.83

Price-to-book value ratio:

The approach of P/B is also similar to P/E, the book value is the total equity and in

order to calculate the price at the end of year 2010.

As the book value change at the year 2010 end, total book value would be US$

23,538 million, the BV per share is then 16. The share price is 16 x 3.52 = US$ 58.43

Table 5.2.3.2: P/B valuation

Price-to-sales ratio:

Table 5.2.3.3: P/S valuation


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CHAPTER 6: CONCLUSION

Fundamental analysis summary:

AZN has a very successful year in 2009 regardless of some trouble with a lawsuit.

Last year profit rose 23.1% and AZN is expanding its market into both matured and

emerging markets. It is also very promising when AZN manages its COGS and

working capital better. This will help to reduce cost, borrowing cost to finance

working capital, and finally boost the bottom line. The product strategy of AZN

sounds to be right as participation into genetic treatment (infection drugs) starts

bring profits. This soon covers the cost to finance the acquisition of MedImmune

and Cambridge Antibody Technology.

The new capital structure now positively put some pressure on management team

so that they can work harder and generate enough cash to repay interest, dividend

and still have some money left to re-invest into its business.

In short, the fundamental analysis shows that AZN is a potential company.

Share price performance and dividend income:

In tracing the share performance of AZN for last three years, I find that AZN share

price outperform the market and its big rivalGSK.

Table 6.1 Share performance

With high capital gain and a progressive dividend policy, AZN stock looks attractive.

However, the AZN stock price could be over weighted upon recent the lawsuit

settlement.6 The valuation result can give a better idea about fair price for an AZN

share.

6 http://www.bloomberg.com/news/2010-07-30/astrazeneca-says-almost-4-000-seroquel-claims-

settled-through-mediation.html


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Valuation result:

The following table summarise the results which are derived by different valuation

methods:

Table 6.2 Valuation results

As discussed above, the asset based value does not reflect the intrinsic value of

shares because it does not include the knowledge assets. For this reason, I exclude

this result from my consideration. The fair price will fluctuate between US$52.33

and US$64.12. However, it is worth paying attention to the fair price which is

derived from FCFE. This fair price is more stable than other prices because the fair

price only changes when there is a fundamental change; meanwhile, the relative

fair price can fluctuate wildly due to the market sentiment.

Investment proposal:

In order to decide whether invest or divest share, it is necessary to consider the

current market price of the AZN and the share price of other companies.

AZN price as of July 31, 2010 is 50.440 US$ (US Market) and or 32.38 GBP (UK

Market). From my valuation result, I think AZN now is undervalued and it is possible

to invest into AZN stock.


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too-high-spends-too-much-on-lobbying/

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prices-6-9-billion-bond-issue

http://www.best-information.eu/international-marketing-strategies/Appendix-B.html

http://www.bloomberg.com/news/2010-07-30/astrazeneca-says-almost-4-000-seroquel-

claims-settled-through-mediation.html
http://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://money.cnn.com/2007/04/23/news/companies/astrazeneca/index.htmhttp://money.cnn.com/2007/04/23/news/companies/astrazeneca/index.htmhttp://www.fiercebiotech.com/press-releases/press-release-astrazeneca-launches-and-prices-6-9-billion-bond-issuehttp://www.fiercebiotech.com/press-releases/press-release-astrazeneca-launches-and-prices-6-9-billion-bond-issuehttp://www.fiercebiotech.com/press-releases/press-release-astrazeneca-launches-and-prices-6-9-billion-bond-issuehttp://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://www.bloomberg.com/news/2010-07-30/astrazeneca-says-almost-4-000-seroquel-claims-settled-through-mediation.htmlhttp://www.bloomberg.com/news/2010-07-30/astrazeneca-says-almost-4-000-seroquel-claims-settled-through-mediation.htmlhttp://www.bloomberg.com/news/2010-07-30/astrazeneca-says-almost-4-000-seroquel-claims-settled-through-mediation.htmlhttp://www.bloomberg.com/news/2010-07-30/astrazeneca-says-almost-4-000-seroquel-claims-settled-through-mediation.htmlhttp://www.bloomberg.com/news/2010-07-30/astrazeneca-says-almost-4-000-seroquel-claims-settled-through-mediation.htmlhttp://www.best-information.eu/international-marketing-strategies/Appendix-B.htmlhttp://www.fiercebiotech.com/press-releases/press-release-astrazeneca-launches-and-prices-6-9-billion-bond-issuehttp://www.fiercebiotech.com/press-releases/press-release-astrazeneca-launches-and-prices-6-9-billion-bond-issuehttp://money.cnn.com/2007/04/23/news/companies/astrazeneca/index.htmhttp://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://industry.bnet.com/pharma/10001729/claim-astrazeneca-ceo-brennans-pay-too-high-spends-too-much-on-lobbying/http://www.best-information.eu/international-marketing-strategies/Appendix-B.html


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Appendix: Financial Statement of companies

ASTRAZENECA


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GLAXOSMITHKLINE


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PFIZER


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ABBOTT LABOTORIES


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