Interactive Investor

ii view: GlaxoSmithKline predicts a landmark year

Upping 2022 estimates and with a separation of its Consumer business pending. We assess prospects.

9th February 2022 11:23

Keith Bowman from interactive investor

Upping 2022 estimates and with a separation of its Consumer business pending. We assess prospects. 

Fourth-quarter results to 31 December

  • Currency adjusted revenue up 9% to £9.53 billion
  • Adjusted operating profit up 15% to £1.89 billion
  • Adjusted earnings per share (EPS) up 9% to 25.6p per share
  • Fourth-quarter dividend of 23p per share
  • Total full-year dividend of 80p per share

Guidance:

  • Expects to deliver growth in 2022 sales of between 5% to 7% at constant exchange rates (CER)
  • Expects to deliver growth in 2022 adjusted operating profit of between 12% to 14% at CER 

Chief executive Emma Walmsley said:

"We have ended the year strongly, with another quarter of excellent performance driven by first-class commercial execution, and we enter 2022 with good momentum. This is going to be a landmark year for GSK, with a step-change in growth expected and multiple R&D catalysts, including milestones on up to 7 key late-stage pipeline assets. 2022 is also the year when we demerge our world-leading Consumer Healthcare business. At our capital markets event later this month, we will set out the future growth ambitions and highly attractive financial profile of this business, and the outstanding opportunity it provides for shareholders."

ii round-up:

Pharmaceutical and consumer healthcare company GlaxoSmithKline (LSE:GSK) today delivered fourth-quarter results broadly in line with City expectations.

Better than expected Pharmaceutical sales helped counter marginally disappointing Vaccine revenues, with currency adjusted sales for its soon to be demerged Consumer Healthcare business also in line, up a tenth to just under £2.5 billion. An increase in full year 2022 sales and profit estimates also broadly matched analysts already hiked forecasts. 

Glaxo shares were little changed in early UK trading, having risen by around 2% year-to-date coming into the results and compared to single-digit losses for FTSE 100 rivals AstraZeneca (LSE:AZN) and Hikma Pharmaceuticals (LSE:HIK)

In January, Glaxo confirmed a £50 billion bid for its Consumer Healthcare business from consumer goods giant Unilever (LSE:ULVR). It rejected the bid on the grounds that it undervalued the business, with its existing plans to demerge the Consumer Healthcare division later in 2022 potentially offering better long-term value for shareholders.

Tight cost control and continued restructuring again played their part in helping to lift quarterly adjusted operating profit by 15% to £1.89 billion, countering increased R&D and supply chain costs. 

The Middlesex headquartered company’s potential new R&D product pipeline currently consists of 21 vaccines and 43 medicines, of which 22 are in pivotal trials. It achieved three new major product approvals during 2021, including Jemperli for endometrial cancer.

Its HIV treatments remained a big seller over 2021 at $4.78 billion, with sales for respiratory and oncology products up 21% and 31% respectively to $2.86 billion and $489 million. Overall pharmaceutical sales grew 4% during the year to $17.73 billion, countering a 3% decline in vaccine sales to $6.78 billion. 

A fourth-quarter dividend of 23 US cents per share leaves the total 2021 dividend at 80p per share, unchanged from the past several years.  

An update on the company’s future strategy is scheduled for the 28 February. 

ii view:

GlaxoSmithKline (GSK) employs over 90,000 people globally. Pharmaceutical sales currently dominate, at around 52% of overall turnover, followed by Consumer Health at 28% and Vaccines the balance of 20%. Geographically, the US accounts for around half of both Pharma and Vaccines sales, and a third at the Consumer Healthcare division.  

For investors, a separation of its Consumer Healthcare division reduces business diversification, adding pressure on its pharma business to deliver new profitable drugs over the longer term. Its HIV business is facing competition from rival Gilead Sciences Inc (NASDAQ:GILD), while the planned separation of the Consumer business will see the dividend payment adjusted across the two companies. 

On the upside, a Consumer Healthcare separation should add increased management focus to each. It could also make each one a more attractive takeover target. Cost savings also remain in management's sights, while an estimated future dividend yield of over 3% is not derisory in the current low interest rate environment. In all, and with significant change pending in 2022, the shares on balance look to remain worthy of ongoing investor support. 

Positives

  • R&D pipeline comprises 64 vaccines and specialty medicines
  • Defensive qualities. Consumers need medicines even in a recession

Negatives

  • Vaccine sales fell 3% over the full year
  • Currency movements can hinder

The average rating of stock market analysts:

Strong hold

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