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Royal Dutch Shell toppled as London's most highly-valued company

At the point at which the demand for oil collapsed, the need for new drugs became a hot issue.

HSBC -

Move over big oil, make way for big pharma. It turns out that these days drugs are more valuable than oil.

Today saw trading updates from two companies that at some point have been the highest valued companies on the London stock market: HSBC Holdings PLC (LON:HSBA) and BP PLC (LON:BP.).

Both are still in the top 10, with banking giant HSBC clocking in at number five with a market capitalisation of £85bn and BP, which has never fully recovered from the Macondo oil well disaster in the Gulf of Mexico, down at number nine with a market cap of £64bn.

Shellshocked

Until recently, BP’s perennial European rival, Royal Dutch Shell PLC (LON:RDSB) has sat atop London’s greasy pole but the collapse in the oil price, coinciding with the dramatic decline in the demand for oil as large parts of the world go into lockdown, has seen the Anglo-Dutch giant toppled.

It now sits at number two, with a market value of £108.1bn, having been overtaken by Anglo-Swedish drugs titan, AstraZeneca PLC (LON:AZN), which has a market capitalisation of £108.8bn.

Why so? Because at the precise point at which the demand for oil collapsed, the need for new drugs became a hot issue.

To be sure, five or 10 years ago, the stock market did not much rate AstraZeneca’s drug pipeline; in 2011 it was said to have the second-worst “patent cliff” in the pharmaceutical industry, plus it had a record of drug development failures that did not inspire confidence in the company’s ability to restock the pipeline.

The smart money in the pharmaceutical probably went on GlaxoSmithkline, which, incidentally, has moved up from the sixth most valuable London-listed company at the end of 2019 to the fourth most valuable now, with a market cap of £85bn.

The second half of the decade just ended (or about to end this year, depending on how pedantic you are) saw the company turn things around, with a focus on cancer (oncology) through the likes of Imfinzi, Tagrisso, Lynparza and calquence), while Fasenra (asthma) also started to rack up sales after its recent launch.

Now, with the race on for drugs companies to find a treatment for coronavirus COVID-19, AstraZeneca is in that small band – admittedly not as small a band as it was four weeks ago – of stocks that have appreciated in value in 2020.

An absolute bargain at less than £100bn

By how much has it increased in value?

Well, if at the end of 2019 you and your mates had a whip-round to buy AstraZeneca, you could have bought it for an absolute bargain £99bn. A year ago, if you are interested, it was even cheaper at £74bn

How US drugs giant Pfizer must have hoped its US$106bn bid approach had succeeded back in 2014, even if it was, perhaps, inspired by the tax dodging trend popular in the US in 2014 for “inversion” - buying a European company and changing the domicile to gain tax benefits.

(Pfizer subsequently bought Allergan, headquartered in Ireland, for US$155bn in 2015).

While AstraZeneca’s star has risen, with the market capitalisation rising by £9.9bn this year, Shell’s market cap has fallen by an astonishing £66.3bn, more than twice as much as the £31.7bn lopped off BP’s value.

That £66.3bn wipe-out makes it by far the biggest casualty of this remarkable year; the next biggest fall from grace is HSBC’s £36.7bn decline.

Interestingly, while AstraZeneca has increased in value, GlaxoSmithkline has seen its market cap decline by £3.8bn but that’s probably just equivalent to the cost of hospitality junkets provided to US physicians in a single year, so probably nothing to get too alarmed about.

The defensive stand-bys don't change much

Drugs companies have always seemed safe buys in a dodgy market and it appears that there has been a flight to safety this year; good old stodgy Unilever PLC (LON:ULVR), the Anglo-Dutch consumer goods diplodocus, still occupies the third-placed position in the list of largest London-listed companies that it occupied at the end of 2019 while it appears that investors cannot kick their addiction to tobacco stocks, with British American Tobacco PLC (LON:BATS) moving up from 10th to sixth despite shedding £2.2bn in value.

Here’s the top ten, pop pickers, of London-listed companies by market value, with their previous rankings in brackets.

 

Ranking Company name Ticker Market capitalisation Change in market cap this year
1 (4) AstraZeneca PLC LON:AZN £108.8bn +£9.9bn
2 (1) Royal Dutch Shell PLC   LON:RDSB £108.1bn -£66.4bn
3 (3) Unilever PLC LON:ULVR £107.3bn -£7.8bn
4 (6) GlaxoSmithKline LON:GSK £85.4bn -£3.8bn
5 (2) HSBC PLC LON:HSBA £84.8bn -£36.7bn
6 (10)  British American Tobacco LON:BATS £68.2bn -£2.2bn
7 (7) BHP PLC LON:BHP £66.6bn -£22.5bn
8 (9) Diageo PLC LON:DGE £63.7bn -£10.3bn
9 (5) BP PLC LON:BP. £63.6bn -£31.7bn
10 (8) Rio Tinto plc LON:RIO £62.8bn -£12.2bn

 

Quick facts: HSBC

Price: 372.05 GBX

LSE:HSBA
Market: LSE
Market Cap: £75.82 billion
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