ii view: have confidence in GSK's outlook

Recently separated from its Consumer Healthcare business and offering an estimated future dividend of around 4%. Buy, sell, or hold?

Fourth-quarter results to 31 December

• Revenue up 4% to £7.37 billion
• Adjusted operating profit up 5% to £1.59 billion
• Net debt of £17.2 billion, down from £19.8 billion
• Quarterly dividend unchanged at 13.75p per share

Guidance:

• Expects full-year 2023 sales growth of between 6% and 8%
• Expects full-year adjusted operating profit to be up between 10% and 12%
• Expects total 2023 dividend of 56.5p per share

Chief Executive Emma Walmsley said:

“We enter 2023 with good momentum, underpinning confidence in our ambitious sales and profit outlooks for 2026. At the same time, we continue to build a stronger portfolio and pipeline based on infectious diseases and the science of the immune system, including our potential new RSV vaccine.” 

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ii round-up:

Pharmaceutical giant GSK (LSE:GSK) today detailed both results and 2023 forecasts broadly in line with City estimates as management continued to try and accelerate growth.

Sales of its shingles vaccine Shingrix and Covid-antibody drug Xevudy helped push a 4% gain in fourth quarter revenues to £7.37 billion, with profit adjusted for its 2022 demerger of Consumer Healthcare business Haleon (LSE:HLN) up 5% to £1.59 billion. Sales and profit for 2023 are expected to grow by up to 8% and 12% respectively. 

GSK shares traded either side of flat in UK trading having come into this latest announcement down by 14% over the last year. Shares for the now separately listed Haleon are up around 7% over the last six months, while shares for major UK rival AstraZeneca (LSE:AZN) have gained by close to a quarter over the last year.

GSK continued to point to its ongoing R&D push, with 69 vaccines and specialty medicines sat in its development pipeline, 18 of which are in final phrase three trials or registration. 

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It anticipates four drug approves during 2023, including its older adult vaccine aimed at Respiratory Syncytial Virus (RSV), a common contagious virus affecting the lungs, and its Jemperli compound for the treatment of endometrial cancer.

Currency adjusted sales during 2022 rose 13% to £29.3 billion, led by a 29% increase in demand for its Speciality medicines to £11.3 billion and including its Covid antibody Xevudy drug. Vaccine sales for the year rose 11% to £7.9 billion, with general medicines up 1% to £10.1 billion.

A fourth quarter dividend of 13.75p per share is unchanged from the previous quarter with the total expected dividend for 2023 staying unchanged at 56.5p per share.  

ii view:

Formed in 2000 via a merger of Glaxo Welcome and SmithKline Beecham, GSK is today a constituent of the FTSE 100 index with a stock market value of more than £55 billion. Its treatments include those for HIV, cancer, shingles, and respiratory conditions. Following the July 2022 demerger of its Consumer Healthcare business, it continues to hold around 6% of Haleon shares. 

For investors, a separation of its Consumer Healthcare business reduces its diversification, adding pressure on the pharma business to deliver new profitable drugs over the longer term. Costs generally for businesses are rising while potential legal claims in relation to alleged unintended drug effects remain a factor across the pharma industry. 

More favourably, the separation of Haleon adds increased management focus to its remaining pharma business and could also make it a more manageable takeover/merger target going forward. Adjusted R&D expenditure rose 12% over 2022 to £5 billion, underlining its emphasis on drug development. An estimated forecast dividend yield in the region of 4% is also not to be dismissed, while costs more generally remain in management’s sights. 

With the consensus analyst estimate of fair value currently sat at close to £17 per share, grounds for continued patience persist. 

Positives

• Defensive qualities. Consumers need medicines even in a recession
• Attractive dividend (not guaranteed)

Negatives

• Rising costs
• Currency movements can hinder

The average rating of stock market analysts:

Strong hold