ii view: negative reaction to GSK's guidance upgrade

Second-quarter results to 30 June

• Revenue up 13% to £7.9 billion
• Operating profit down 23% to £1.65 billion
• Adjusted or core operating profit up 16% to £2.51 billion
• Quarterly dividend of 15p per share, unchanged from Q1
• Net debt down 7% from late December to £13.96 billion

Guidance:

• Now expects full-year revenue growth of between 7% and 9%, up from 5-7%
• Now expects core operating profit growth of between 11% and 13%, up from 9-11%
• Continues to expect to pay a total annual dividend of 60p per share, up from 58p in 2023

Chief Executive Emma Walmsley said:

“GSK's momentum this year continues with excellent second quarter performance, reflecting strong operational execution and the strengthening breadth of our portfolio to both prevent and treat disease.”

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ii round-up:

GSK (LSE:GSK) today detailed second-quarter sales and profit that beat City expectations, enabling the UK drug giant to increase its full-year forecasts. 

A 22% jump in Speciality medicine sales to £3 billion, including those for HIV and cancer, helped fuel a 13% improvement in second-quarter group sales to £7.9 billion. Analysts had expected nearer to £7.5 billion. Sales for Vaccines fell 1% to £1.9 billion, including a 4% fall for previous key performer and shingles prevention Shingrix. 

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news up 6% year-to-date. That’s below a 15% gain for rival AstraZeneca (LSE:AZN) but broadly in line with an 8% gain for the FTSE 100 index in 2024. 

GSK operates across the three areas of Specialty Medicines, General Medicines, and Vaccines, with each generating around a third of overall group sales. General medicines sales gained 9% to £2.86 billion, including a 41% jump in demand for its Trelegy drug to treat chronic obstructive pulmonary disease (COPD).

GSK now expects full-year 2024 revenue growth of between 7% and 9%, up from a previous estimate of between 5% and 7%. 

Headline profit for the quarter fell 23% year-over-year to £1.65 billion, including adjustments made for improved long term HIV patient prospects and foreign exchange movements. 

Excluding such factors, adjusted or core profit climbed 16% to £2.51 billion. Annual profit on that basis, and aided by increased sales expectations, are now tipped to grow by between 11% and 13%, up from a previous forecast of 9% to 11%.  

A second-quarter dividend of 15p is unchanged from Q1, but better than the 14p declared this time last year. GSK continues to expect a full-year 2024 dividend of 60 per share, up from 58p in 2023. 

Third-quarter results are scheduled for 30 October. 

ii view:

Formed in 2000 via a merger of Glaxo Welcome and SmithKline Beecham, GSK is today a constituent of the FTSE 100 index employing over 65,000 people. Geographically, the US is by far its biggest market at just over a half of total sales in 2023. The UK accounted for just over 2%. UK stock market listed rivals include AstraZeneca and Hikma Pharmaceuticals (LSE:HIK). 

For investors, potential legal claims in relation to alleged unintended drug effects are an ongoing worry across the pharma industry, with GSK’s discontinued heartburn drug Zantac currently in the spotlight. Pressure to develop new best sellers is a constant for all pharma companies. Generic competition remains a threat, particularly for its General medicines category, while costs generally for businesses remain elevated. 

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To the upside, the 2022 demerger of its Haleon (LSE:HLN) consumer healthcare business leaves management more focused on pharma growth. Year-to-date, GSK has seen approvals or filings for 10 major formulas and reported positive data for seven phase III trials. Acquisitions previously included buying late-stage cancer treatment developer Sierra Oncology for $1.9 billion (£1.5 billion), while robust cashflows have helped net debt reduce 7% from late December to £13.96 billion.  

On balance, and while some caution remains sensible given Zantac litigation risk, a consensus analyst fair value estimate above £19.50 per share and forecast future dividend yield of near 4%, are likely to secure loyalty from long-term fans of this drugs giant. 

Positives

• Defensive qualities. Consumers need medicines even in a recession
• Artificial Intelligence or AI could favourably impact future drug development

Negatives

• Generic competition
• Currency movements can hinder

The average rating of stock market analysts:

Buy