GlaxoSmithKline shares dive on profits forecast and dividend fear

There will be changes to Glaxo’s dividend policy as profits barely cover the payout.

GlaxoSmithKline (LSE:GSK) investors looking for upside from the world's largest vaccines company were again disappointed today as shares fell a further 5% on the drugs giant's 2021 outlook.

Immunisations are at the heart of the global economic fightback, but for Glaxo the year ahead will only see vaccines revenue grow by flat-to-low single digits. That’s because demand for its best-selling shingles jab Shingrix is disrupted by the prioritisation of Covid-19 vaccination programmes.

While Glaxo has said it won't profit from its own efforts on the Covid-19 front, the company still suffered a setback in December when its collaboration with France's Sanofi (EURONEXT:SAN) was found to have insufficient immune response in older adults. The vaccine is now likely to be ready towards the end of this year, rather than the middle of 2021 as originally hoped.

• Invest with ii: Top UK Shares | Share Tips & Ideas | Open a Trading Account

Ahead of today's fourth-quarter results, Glaxo revealed that it is also working with Germany's CureVac (NASDAQ:CVAC) on a vaccine for fighting emerging variants of Covid-19. This won't be released until next year, but, in the meantime, the UK company will support the manufacture of up to 100 million doses of CureVac's first generation Covid-19 vaccine candidate.

• GlaxoSmithKline about to confirm dividend plans
• Dividend prospects for 2021: return to normality or permanent reset?

Shares were broadly unchanged following the CureVac update, but then slumped by 67p to 1,301p after Glaxo issued its guidance showing that adjusted earnings per share (EPS) at constant currency rates is expected to decline by mid-to-high single digits in 2021.

This comes after an EPS fall of 4% to 115.9p in 2020 as a strong performance in HIV, respiratory, oncology and consumer healthcare was offset by disruption from Covid-19 to adult vaccinations. Fourth-quarter EPS was 5% lower at 23.3p.

Glaxo's forecasts for 2021 are based on healthcare systems and consumer trends returning to near normality in the second half of the year. This should mean Pharmaceuticals grows revenues by flat to low-single digits and consumer healthcare by low to mid-single digits.

Dividend prospects

The Glaxo share price is close to its lowest level since September 2015, having fallen by 28% in a year. It comes half-way through a two-year plan costing an estimated £2.4 billion for Glaxo to spin-off its consumer healthcare joint venture into a separate stock market business.  

While those demerger plans remain on track, the focus is now on the prospects and investment needs of the standalone biopharma business and how this impacts future dividends.

The company said today it had no plans to alter the usual 80p a share payment for this year, having paid this level of dividend since 2014. However, it told shareholders to expect a new distribution policy in 2022 when aggregate distributions will be lower than present.

Glaxo's fourth-quarter dividend of 23p a share, which is barely covered by earnings, will be paid to shareholders on 8 April, and brings the total outlay for the year to just under £4 billion.

What the boss said

Chief executive Emma Walmsley will provide a detailed update on the growth outlook for the biopharma business in June, when more will be known about capital allocation priorities.

In the meantime, she expressed “high confidence” that a new-look Glaxo can have a meaningful global impact on health and achieve significant value creation for shareholders.

Walmsley pointed out that 20 assets were now in late-stage clinical trials and that more than 20 new product launches were planned by 2026, including at least 10 with potential peak annual revenues of more than $1 billion.

• Shares for the future: four firms re-scored
• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)

The vaccines business, which is the largest in the world by revenues, has a portfolio of more than 30 products for every stage of life, helping to protect people against 21 diseases. 

Walmsley said: "2020 was an extraordinary year for all of us, and one of significant progress for GSK. We invested in our pipeline and new launches, readied the company for separation, and had to rapidly mobilise and respond to the pandemic.”