GSK stock looks sickly amid vaccine sales gloom
Shares in the drugs giant fell close to a one-year low following these results. City writer Graeme Evans talks through the numbers and what’s weighing on the price.
30th October 2024 16:03
by Graeme Evans from interactive investor
The re-rating case for GSK (LSE:GSK) in the wake of its Zantac settlement was today dealt a setback when sales of key vaccines Shingrix and Arexvy disappointed in third-quarter results.
The widely held stock fell 63p to a fresh low for the year of 1,388.5p, even though strong momentum elsewhere meant GSK reiterated the upgraded guidance given in July.
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Shares are trading on a forward-looking earnings multiple of about 8.1 times, a big discount to the median of peers on 13.9 times and below the 12 times GSK has historically commanded.
Shore Capital continues to believe a return to this level of multiple is achievable as it retained its fair value estimate of 2,200p in the wake of today’s results.
It argues that this month’s removal of uncertainty after GSK set aside $2.2 billion to settle 93% of Zantac litigation claims left the share price well positioned to re-rate.
The City firm added: “Our thesis remains that GSK offers a decent period of near-term growth with a realistic prospect of fulfilling its longer-term growth ambitions, which taken together look wholly unbecoming of single-digit earnings multiple.”
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The shares were above 1,800p before claims relating to the heartburn drug Zantac emerged in 2022 to spark fears that GSK faced a legal bill as high as $25 billion.
GSK, which admitted no liability in the settlement, intends to fund Zantac costs from existing financial resources with no impact on its “growth agenda or investment plans”.
Its dividend policy for a payout equivalent to 40-60% of earnings is also unchanged, with the company today reiterating that it expects to declare 60p a share across 2024. This includes plans for the £612 million distribution of 15p a share on 9 January.
As well as restating guidance for this year, chief executive Emma Walmsley said progress in R&D and successful new product launches such as those in oncology and HIV left the company “even more confident in our 2026 and 2031 outlooks”.
Revenues are still expected to grow in the region of 7-9% this year as improved performances in the divisions of Specialty and General Medicines offset a low single-digit sales decline in Vaccines. Core operating profit is forecast to grow 11-13% at constant currency rates.
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Vaccine sales fell 15% in today’s results, impacted by a tough comparative and headwinds due to the prioritisation of Covid vaccinations in the US.
Sales of shingles product Shingrix dropped 7% to £739 million, which Shore Capital said represented a 13% miss as lower demand in the US more than offset stronger international uptake.
The respiratory syncytial virus vaccine Arexvy also missed City targets by some distance, with the 72% decline to £188 million caused by comparisons with last year’s launch period and the tighter recommendation of a US regulator on usage by individuals aged 60 to 74.
There was momentum elsewhere in the business, with recent product launches helping Oncology to come in ahead of expectations following 94% sales growth to £373 million. The performance in the General Medicine division also beat hopes by 4%.
Graeme Evans own GSK shares.
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