This pharma giant’s long list of new drugs should cushion the fall from the ‘patent cliff’

If all goes well Novartis should be able to grow its revenues by 5pc a year at constant exchange rates until 2028. At the same time it expects to take its profit margins to more than 40pc, cementing its position as one of the most profitable global pharmaceutical companies.

More importantly, Novartis will have a much more balanced drug portfolio, with Kesimpta, Cosentyx and Kisqali each accounting for more than 10pc of revenues.

Gleave’s focus on cash flow underpins her faith in Novartis. The company has consistently converted around a quarter of its revenues into free cash flow over the past five years, which makes it a standout performer in the sector.

The piles of surplus cash have allowed Novartis to increase its dividend for 27 consecutive years while shrinking its share count by nearly 12pc over the past five years via share buybacks. The company’s “shareholder yield” – the sum of the last year’s dividends and buybacks as a percentage of its market value – is an attractive 7.8pc.

On more traditional measures of valuation, Novartis shares trade on 14 times the next year’s forecast earnings per share while offering a dividend yield of 3.7pc on the basis of forecasts for the next 12 months. With the prospect of further buybacks, the shares offer decent value.

Questor says: buy

Ticker: SWX:NOVN

Share price at close: Sfr88.44

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