ii view: GSK exceeds City expectations and beefs up forecasts

Having recently separated out its consumer healthcare business, management is now purely focused on pharma. We assess prospects. 

Third-quarter results to 30 September

• Currency adjusted revenue up 9% to £7.83 billion
• Adjusted operating profit up 15% to £2.6 billion
• Quarterly dividend of 13.75p per share

Guidance:

• Expects full-year currency adjusted sales growth of between 8% and 10%, up from 6% to 8%
• Expects full-year adjusted operating profit to be between 15% and 17%, up from 13% to 15%

Chief Executive Emma Walmsley said:

"GSK has delivered another quarter of excellent performance, with strong growth in Specialty Medicines, record sales for our shingles vaccine, Shingrix, and further improvements in adjusted operating profit. We are again raising our full-year guidance and expect good momentum in 2023, further strengthening our confidence in our performance outlooks, driven by Shingrix global expansion and expected new launches including our new RSV vaccine. 

“We are also making good progress to strengthen our early-stage pipeline and will continue to invest in targeted business development to build optionality and support growth in the second half of the decade."

ii round-up:

Pharmaceutical giant GSK (LSE:GSK) today reported both sales and profits which beat City expectations, helping it to raise its expected growth in full-year revenues and earnings.

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The FTSE 100 company, which in July demerged its consumer healthcare business Haleon (LSE:HLN), detailed currency adjusted third-quarter sales growth of 9% year-over-year to £7.83 billion, aided by ongoing demand for its shingles vaccine Shingrix and Covid-antibody drug Xevudy. 

Full-year adjusted operating profit is now expected to improve by between 15% and 17%, up from a prior 13% to 15%. 

GSK shares rose by close to 2% in UK trading having fallen by around a tenth year-to-date coming into this latest announcement. Shares for its now separately listed Haleon business are down around 3% over the last month, while shares for major UK rival AstraZeneca (LSE:AZN) have gained by just over a fifth in 2022. 

GSK pointed to a continued strengthening of its late-stage drug development pipeline, with the results coming alongside news of a priority usage review by US authorities for its older adult vaccine aimed at Respiratory Syncytial Virus (RSV), a common contagious virus affecting the lungs. 

Sales of GSK’s Specialty Medicines including its Xevudy Covid-antibody drug rose by almost a quarter during the three months to the end of September, with Vaccine sales on the same basis growing 5% and General medicines a further 1%.  

GSK made legal provisions of £45 million during the quarter, which follow a series of lawsuits in relation to its 2019 recalled heartburn drug Zantac and possible links to cancer. 

The now pure pharmaceutical company declared a dividend of 13.75p per share for the quarter, with the total full-year dividend still expected to come in at 61.25p per share. 

Fourth-quarter and annual results are scheduled for 1 February. 

ii view:

Formed in 2000 via a merger of Glaxo Wellcome and SmithKline Beecham, GSK is today a major pharmaceutical company with a stock market value of more than £55 billion. Its treatments include those for HIV, cancer, shingles, and respiratory conditions. Following the July demerger, it continues to hold around 6% of Haleon shares. 

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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. Its HIV business is facing competition from rival Gilead Sciences Inc (NASDAQ:GILD), while concerns regarding potential legal settlements for its former Zantac drug now persist. 

On the upside, the separation of Haleon adds increased management focus to its remaining pharma business and could also make it a more digestible takeover/merger target going forward. Cost savings remain a key focus, while an estimated future dividend yield in the region of 4% is not to be dismissed. 

On balance, and with the consensus analyst estimate of fair value currently sat at around £18 per share, investors are for now likely to remain long-term patient. 

Positives

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

Negatives

• Potential lawsuits regarding Zantac
• Currency movements can hinder

The average rating of stock market analysts:

Strong hold