Interactive Investor

ii view: UK drug giant GSK lifts 2023 profit hopes

Big in vaccines and HIV treatments and offering an attractive forecast dividend yield. Buy, sell, or hold?

1st November 2023 11:34

by Keith Bowman from interactive investor

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Third-quarter results to 30 September

  • Adjusted revenue up 10% to £8.15 billion
  • Adjusted earnings up 17% to 50.2 per share per share
  • Net debt of £17.6 billion, up from £17.2 billion at the end of 2022
  • Quarterly dividend unchanged from Q2 at 14p per share

Guidance:

  • Now expects full-year adjusted earnings growth of between 17% and 20%, up from 14% to 17%
  • Continues to expect a total 2023 dividend of 56.5p per share

Chief Executive Emma Walmsley said:

"GSK is delivering strong and sustained performance momentum, with another quarter of double-digit sales and earnings growth. GSK's longer-term outlook also continues to strengthen, with progress in our vaccines pipeline, the development of our ultra long-acting HIV portfolio and significant new prospects in respiratory."

ii round-up:

Pharmaceuticals giant GSK (LSE:GSK) today raised its sales and profit predictions following the strong launch of its Arexvy vaccine to combat Respiratory Syncytial Virus (RSV) in older people.

Full-year sales are now expected to rise between 12% and 13% from a previous 8% to 10% forecast, pushing expected growth in adjusted earnings to between 17% and 20% from a prior 14% to 17% estimate. 

Shares in the FTSE 100 company rose by more than 1% in UK trading having come into this latest news little changed over the last year. That’s similar to rival AstraZeneca (LSE:AZN) and in line with the FTSE 100 index.

Sales of Arexvy hit £709 million during the quarter, about double City expectations and came mainly in the US where RSV causes thousands of hospitalisations and deaths among older people every year. Arexvy is now approved in regions including the US, Europe and Japan.

Sales of its Shingles vaccine rose 15% on a currency adjusted basis to £825 million, with a new promotional partnership set to begin in China in early 2024. Total vaccine related sales grew by a third year-over-year to £3.22 billion. 

HIV related treatments climbed 15% to £1.62 billion, while cancer related sales including its Jemperli drug for endometrial cancer, rose by a quarter to £200 million. 

A quarterly dividend of 14p per share was unchanged from the previous quarter, leaving it on track to pay a total of 56.5p per share in 2023. Fourth-quarter and full-year results are pencilled in for 31 January. 

ii view:

Formed in 2000 via a merger of Glaxo Welcome and SmithKline Beecham, GSK is today one of the ten largest constituents of the FTSE 100 index, employing over 65,000 people. Vaccines remain its biggest seller at around two-fifths of overall revenue, followed by Speciality medicines including those for HIV and cancer at almost a third. General medicines accounts for the balance. Geographically, the US is by far its biggest market at over half of all sales. 

For investors, pressure to develop new blockbuster drugs is a constant across the industry. General medicine sales declined by 2% during this latest quarter, costs generally for businesses remain elevated, while potential legal claims in relation to alleged unintended drug side-effects are an ongoing worry for all drug companies.  

On the upside, the 2022 separation of its Haleon (LSE:HLN) consumer healthcare business arguably leaves management more focused on pharma growth, and could even make it an easier takeover or merger target. Costs generally are a big focus, the development of Artificial Intelligence could favourably impact future drug development, while adjusted R&D expenditure rose 12% in 2022 to £5 billion, underlining GSK’s emphasis on drug development.

On balance, and despite ongoing risks, a forecast dividend yield of around 4% should mean income investors are  happy to stay onboard. 

Positives

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

Negatives

  • Elevated costs
  • Currency movements can hinder

The average rating of stock market analysts:

Strong hold

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