There is no question that GlaxoSmithKline (GSK) is good at what it currently does. In respiratory, consumer health and vaccines it is a global leader, and all three of these core divisions performed well in 2016. The question is whether GSK is doing the right thing to ensure long-term growth.
The group's 2015 asset swap with Novartis (CH:NOVN) raised some eyebrows. Critics rejected the idea that toothpaste would be a better business venture than life-saving cancer drugs. But the consumer healthcare business, which was enhanced through this transaction, reported £7.2bn of revenue in 2016, a 9 per cent constant-currency rise on the previous year. By contrast, the cancer drugs GSK sold to Novartis are beginning to look dated as more effective immuno-oncology drugs (which stimulate a person's immune system) arrive on the market.
A lack of investment in new drugs also appears to be a somewhat unfair criticism. Core research and development expenditure rose 3 per cent to £3.5bn in 2016 - although this was still below the spend of smaller rival AstraZeneca (AZN) in the same period. Revenue from new products more than doubled to £4.5bn and new drugs helped the pharmaceuticals division report pro-forma revenue growth of 4 per cent, despite a drop in sales from former best-sellers.
At the group level, numbers have once again been affected by the £9.2bn profit from the Novartis deal felt in 2015, and the revaluation of assets within that joint venture. Strip out these and other one-off factors and core earnings rose 12 per cent to 102p on a constant currency basis.
It was a confident set of results for Sir Andrew Witty's swan-song: he will hand over the chief executive role to Emma Walmsley in March. But on the outlook management have delivered a word of warning. In 2017 GSK's former best-selling asthma drug Advair is likely to face competition from an unbranded version developed by US group Mylan (US:MYL). GSK is expecting the sales hit caused by the launch of generic Advair to leave 2017 earnings flat.
GLAXOSMITHKLINE (GSK) | ||||
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ORD PRICE: | 1,553p | MARKET VALUE: | £76.3bn | |
TOUCH: | 1552.5-1553.5p | 12-MONTH HIGH: | 1,736p | LOW: 1,318p |
DIVIDEND YIELD: | 5.2% | PE RATIO: | 83 | |
NET ASSET VALUE: | 22.9p* | NET DEBT | 278% |
Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
---|---|---|---|---|
2012 | 26.4 | 6.6 | 92 | 74.0 |
2013 | 26.5 | 6.6 | 113 | 78.0 |
2014 | 23.0 | 3.0 | 57 | 80.0 |
2015 | 23.9 | 10.5 | 174 | 80.0 |
2016 | 27.9 | 1.9 | 19 | 80.0 |
% change | +17 | -82 | -89 | - |
Ex-div: 23 Feb Payment: 13 Apr *Includes intangible assets of £24.7bn, or 504p a share |