GSK spin-off Haleon: what you need to know about the £45bn company

With the London stock market starved of IPOs, the listing of Haleon in the FTSE 100 will be a major focus for investors next week. Here's what the City expects from the world’s only pure-play consumer healthcare business of scale.

GSK (LSE:GSK) consumer healthcare division Haleon will give the London market one of its biggest new listings of recent times when its demerger finally takes place on Monday 18th July.

The Panadol and Sensodyne business is expected to be valued at more than £45 billion including debt, having been the target of a £50 billion cash and shares offer from Unilever (LSE:ULVR) last year.

The debut of the world’s only pure-play consumer healthcare business of scale represents a timely boost for the London market after a year starved of major new arrivals.

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Its premium listing means Haleon will qualify for the FTSE 100 index alongside GSK, which will be focused on the development of vaccines and specialty medicines.

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The split represents the most significant corporate change by GSK in the last two decades, coming four years after it paid $13 billion (£9.2 billion) for Novartis’ 36.5% stake in their consumer healthcare joint venture.

The move will allow the drugs company run by Dame Emma Walmsley to address a decade of underperformance in comparison with the likes of fellow top flight stock AstraZeneca (LSE:AZN).

Her targets for New GSK are based on compound annual growth in sales and adjusted operating profit of more than 5% and 10% respectively at constant exchange rates.

Analysts at UBS have forecast 6% sales growth up to 2026, which would place the company closer to its peer group than in recent years. To re-rate substantially, however, they say investors will want to see more from the pipeline excluding vaccines and HIV.

The Swiss bank thinks GSK will have as much as £12 billion in M&A firepower to make this happen.

UBS said: “We expect deals with the potential to be taken positively are those that could help GSK establish an area(s) of strength away from its legacy respiratory business.”

Based on a model where Haleon is valued on a Nestle-like forward multiple of 22.4 times earnings, it says the current GSK share price implies New GSK is on a multiple of 11.7x.

UBS said: “We can see the argument for something closer to Sanofi SA (EURONEXT:SAN) trading at 12.4x.”

Haleon, which is currently part owned by GSK with fellow drugs giant Pfizer Inc (NYSE:PFE), has disclosed it is looking to generate medium-term annual organic revenue growth of between 4% and 6%.

Potential share price positives flagged by UBS include the company’s scarcity value, bid speculation and too much conservatism in current sales growth forecasts.

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On the downside, analysts have warned about the overhang from the November expiry of lock-ups agreements on the 45% retained stakes at GSK and Pfizer. There are also concerns about the amount of GSK debt being transferred to the Haleon balance sheet, leaving the company trading with high “day one” leverage of four times earnings.

Jefferies sees Weybridge-based Haleon delivering 5% sales growth this year but warns conditions are likely to get tougher and has modelled 4.3% in the outer-years.

The bank said: “The bull case from here is that capable management, liberated from what have been years of cost-led integration, should be able to drive the top line harder.”

On a more cautious note, it highlights that industry growth prior to Covid was sub-4%, reflecting category maturity and pricing pressures. It also flagged that Haleon looked to have been losing share in its core market of the US.

Haleon’s initial dividend is expected to be at the lower end of a 30% to 50% pay-out ratio. The new GSK expects to pay a dividend of 45p per share for 2023, down on the 80p a share paid over each of the last five years but excluding any dividends from Haleon.

GSK’s second-quarter results are scheduled for 27 July when the consumer healthcare business will be treated as a discontinued operation. Haleon will also provide a trading update, coming ahead of its interim results scheduled for September.