ii view: how Haleon results beat City forecasts

Recently spun out of GSK, shares for this maker of healthcare products have subsequently fallen. But not today. We assess prospects. 

First-half results to 30 June  

• Revenue up 13.4% to £5.19 billion
• Adjusted operating profit up 21.2% to £1.19 billion
• Net debt of £10.7 billion
• Full year guidance unchanged

Chief executive Brian McNamara said:

“Haleon performed strongly in the first half of the year with double digit revenue growth, importantly with a healthy balance of price and volume/mix reflecting brand strength across our portfolio. Furthermore, we gained or maintained share in most of our business, demonstrating that continued investment is driving sustainable growth, even in difficult market conditions. 

“Whilst navigating the current macro-economic challenges and uncertainties, positive momentum in our business has continued into the second half. This combined with the strength of the business reinforces our confidence that we are well positioned to deliver on guidance this year and over the medium term."

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ii round-up:

Consumer healthcare company Haleon (LSE:HLN) and owner of such brands as Advil and Panadol painkillers and Sensodyne toothpaste today detailed interim results which marginally beat City forecasts.

Haleon, which earlier this year demerged from pharma giant GSK (LSE:GSK), reported a 13.4% improvement in sales, pushing adjusted operating profit up by around a fifth to £1.19 billion as it left its guidance for the full year unchanged. 

Management also said it had rejected requests from both former owner and partner GSK and Pfizer Inc (NYSE:PFE) for indemnification in relation to US based litigation regarding the heartburn drug Zantac. 

Haleon shares rose by over 2% in UK trading having come into this announcement down by around 15% since the demerger. GSK is down by a similar amount year-to-date, while the FTSE All Share is down by around 5% in 2022. 

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Haleon's product portfolio spans the five categories of Oral Health; Vitamins, Minerals and Supplements; Pain Relief; Respiratory Health; and Digestive Health.

Two-thirds of its business either gained or maintained market share during the period, with sales of Panadol, Advil, Theraflu cold relief and Centrum vitamins all contributing to growth. 

Broker Morgan Stanley highlighted an ‘equal weight’ rating on the shares following the results with an estimated fair value target of 285p a share. 

A third-quarter trading update is scheduled for 10 November.

ii view:

Headquartered in Weybridge, Surrey, and a constituent of the FTSE 100 index, Haleon employs over 22,000 people in more than 170 markets. During 2021, sales of oral care products accounted for near to 30% of overall sales; pain relief remedies at almost a quarter; digestive health and other at around a fifth; with the balance split between vitamins and respiratory health. The USA is its biggest single country of sales at close to a third of overall revenue, followed by China at just under a tenth.

For investors, an uncertain economic outlook cannot be ignored, with interest rates rising and consumers battling a cost-of-living crisis. We could also see consumers downgrade to cheaper supermarket own-brand products, while the uncertainty of potential litigation regarding the Zantac heartburn drug is an overhang.

On the upside, the company still expects full-year organic sales growth of between 6% and 8%. Haleon also enjoys diversity of both product and geographical regions, while free cashflows are expected to help reduce debt, with an eventual initial dividend expected to be at the lower end of a 30% to 50% pay-out range. 

On balance, and while possible litigation claims offer reason for caution, exposure to potentially defensive healthcare products provides grounds for patience.  

Positives: 

• Diversity of product and geographical region
• Targeting costs

Negatives:

• Both GSK and Pfizer may reduce existing shareholdings
• Exposure to currency movements

The average rating of stock market analysts:

Strong hold