Questor share tip: GlaxoSmithKline could deliver on capital gains and yield

Questor tipped GlaxoSmithKline as a yield play earlier this month. Yesterday's results suggest it could also deliver in terms of capital gains.

GlaxoSmithKline

£13.73 +9½p

Questor says Buy

Like all the big pharma groups, GSK is struggling with the loss of patents on key drugs. But it is further through this process than rival AstraZeneca. There may be some generic competition for GSK's asthma drug, Advair, towards the end of this year, but otherwise much of the risk posed by generics has passed.

What chief executive Andrew Witty is hoping is that GSK can come through with new drugs, just as its competitors are "going into their darkest days".

So far, it looks like GSK's dark days are largely behind it. This year's results have shown steep declines, compared with last year, which was boosted by windfall sales of vaccines and drugs for swine flu. The company has also suffered waning demand for its diabetes pill Avandia and herpes drug Valtrex.

Yesterday, GSK said second-quarter sales slipped 4pc on those of a year earlier. That is a significant improvement on the previous two quarters, when sales were down 10pc and 11pc.

What's more, there was good news about hepatitis C drug Promacta, and Advair-replacement Relovair, which both proved successful in late-stage studies. GSK expects to present Phase III clinical trial results on 14 more drugs this year and next.

GSK has been trying to reduce its reliance on what Mr Witty refers to as "white pills in Western markets" - the drugs most susceptible to falling prices and generic competition - by building its consumer healthcare and emerging markets. While the company announced declines in most sectors in the second quarter, sales in consumer health ticked up 4pc, while emerging markets revenues were 12pc higher.

The company also made better progress than expected with its cost-cutting programme. It now expects additional savings of around £300m a year, bringing total savings to £2.5bn a year by 2012. A large chunk of those will be reinvested back into emerging markets.

Then, of course, there's the 5pc dividend yield to tempt you in. A strong buy.