Profits are down, but vaccination rates were up in the third quarter and another dividend is promised.
The pharmaceuticals giant told the City it remains on track to meet 2020 forecasts, even though that guidance for a decline in earnings per share of between 1% and 4% on a year earlier was made in February, prior to the Covid-19 pandemic taking hold.
Since then, demand for top-selling vaccines such as Shingrix has been severely disrupted by the inability of people to reach healthcare professionals during government lockdowns.
Glaxo today reported a recovery in vaccination rates during the third quarter, with adult immunisations in the US in September on a par with a year earlier.
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This improvement, coupled with cost controls and the strong performance of key growth products, means Glaxo should be at the lower end of the 1% to 4% guidance. It had warned in July that there were “notable risks” to the outcome for the rest of the year.
The third-quarter update should give income investors confidence that they can expect another 80p a share in dividend payments from 2020 trading. This includes today’s award of 19p a share, which amounts to £946 million in total and will be in accounts on 14 January.
The annual 80p outturn goes back to 2014 and, despite the lack of growth, highlights one reason why Glaxo featured alongside BP, Boohoo (LSE:BOO), Lloyds Banking Group (LSE:LLOY) and Royal Dutch Shell (LSE:RDSB) as one of the five most-bought shares on the interactive investor platform in the third quarter.
The buying comes after a period of dividend cuts and suspensions across the FTSE 100 index.
Glaxo said today there would need to be “material change” in the external environment or performance expectations for it to change the 80p a share dividend. It is targeting free cash flow coverage in a range of 1.25-1.50x before returning the dividend to growth.
The interest in Glaxo has also been driven by the sight of shares at their lowest level since 2018, whereas the valuation of Cambridge-based rival AstraZeneca (LSE:AZN) has been more robust after a year of largely better-than-expected profits and a resilient outlook. Astra, which is the UK’s biggest stock at more than £105 billion, is due to publish third-quarter results next week.
Glaxo shares were initially boosted by today’s update, reaching positive territory for a short period before moving 32.4p lower to 1,328.6p in the broader stock market sell-off.
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The company reported revenues of £8.6 billion for the quarter, which was down by 3% at constant exchange rates after a decline of 9% for the vaccines division due to the adverse impact of the Covid-19 pandemic on Shingrix and other products.
In pharmaceuticals, which is the company’s biggest division, sales were 3% lower at £4.19 billion after sales of Trelegy and Nucala boosted respiratory revenues. Across the group, adjusted earnings of 35.6p a share were higher than the average forecast of 30.4p in the company-compiled consensus of 16 analysts.
Glaxo chief executive Emma Walmsley said: “GSK has responded well to a challenging operating environment this year with disciplined cost control and strong commercial momentum in key growth products.”
The value enhancing separation of the consumer healthcare division into a standalone business is set to take place in the next couple of years and will leave Glaxo focused on the immune system, use of genetics and new technologies.
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Its pipeline of products now contains 40 medicines in development and 18 vaccines, including its collaboration with Sanofi(EURONEXT:SAN) on a potential Covid-19 jab. The two companies said today that they hope to make available 200 million doses of their potential vaccine to the COVAX facility set up to ensure timely, cost-effective and equitable access to Covid-19 vaccines.
Sales in consumer healthcare were £2.4 billion in the quarter, a rise of 2% at constant exchange rates after growth in oral health and vitamins, minerals and supplements brands was offset by weaker performance in respiratory health and pain relief.
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