Tuesday tips round-up: GlaxoSmithKline, Pace

GlaxoSmithKline's sales in China tumbled by 60 per cent in the third quarter, the company revealed on Wednesday, halving the country's contribution to Glaxo's total quarterly pharmaceutical sales in emerging markets when compared with year-ago levels. However, this hides the fact that the firm's operating margins continue to improve, R&D costs continued to decrease and that the company as a whole is slimming down. It is also generating a substantial free cash flow, which will fund a 6% increase in the dividend and a £1bn share repurchase. The stock is up 18% this year, against 10% for AstraZeneca and 50% for Bristol Myers Squibb. Yet it continues to trade at a discount to Swiss and US rivals. The China has been a drag on the shares; all the more reason to try and put the matter behind it, the Financial Times's Lex column says. Set-top box technology firm Pace on Wednesday agreed to the purchase of Aurora, which makes kit for broadband suppliers that allows these to provide higher-bandwidth video, data and voice services. It comes after the company eschewed the opportunity to go after Motorola's set-top box division, which in the end fetched a far too rich valuation. The transaction increases the company's product range for cable operators and makes financial sense too. Although the deal will be debt-financed, Pace believes that its strong cash-flow will allow it to reduce debt quickly. Once take in savings from synergies and the transaction price are accounted for the acquisition target's earnings multiple comes in at about eight, while existing management are being given an incentive to stay on. Stock in Pace sells on about 11.5 times' earnings, which still looks attractive enough even after the shares sharp gains year-to date, The Times's Tempus says. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB