- Upcoming drug approvals could boost shares
- Concerns linger over litigation and long-term pipeline
GSK (GSK) has reported better-than-anticipated revenue for 2022, thanks in significant part to its blockbuster Shingrix shingles vaccine. The pharma giant, which is working to emerge from years of share price underperformance, now expects adjusted operating profit to increase by between 10 and 12 per cent in 2023.
Earnings per share (EPS) for the fourth quarter came in at 25.8p on sales of £7.4bn. The company claimed analyst consensus put the EPS figure at 21.2p on sales of £7.1bn.
Chief executive Emma Walmsley stated that the company had started 2023 with “good momentum” and was bullish on its medium-term prospects. “This momentum, together with further targeted business development, means GSK will also be in a strong position to deliver growth from 2026 onwards,” she said in a statement. But whether investors will be comfortable with that timeframe is another matter.
There are a handful of potential approvals on the horizon that could bolster the company’s shares. One of the most notable assets in its pipeline is a vaccine against respiratory syncytial virus (RSV), a common virus that can be deadly in young children and the elderly. The total global market for RSV jabs is thought to be more than $10bn per year. Pfizer (US:PFE) and Moderna (US:MRNA) also have their own formulations in the works.
US litigation surrounding the heartburn drug Zantac, a legacy GlaxoSmithKline product, remains a key drag on the company’s shares. “While this process is not over, the good news is that a judge in Florida recently ruled that claims in the federal multidistrict [court] were not sound,” said Sebastian Skeet, senior analyst for healthcare at research firm Third Bridge.
A bellwether trial is set to begin later this month, which should give shareholders some indication of how the legal action will play out. GSK has been named as a defendant in approximately 3,000 personal injury cases that allege Zantac is linked to the development of cancer. The company has consistently denied the claims.
GSK’s shares currently trade on a forward price/earnings ratio of 9 for the 2024 financial year, which is a significant discount to US and European peers on a group average of 15. The company’s results received a lukewarm reception from markets, with the shares flatlining through early trading on results day.
In addition to the ongoing litigation, concerns persist over the drugmaker’s long-term growth prospects. However, we think the improving drugs pipeline means there’s strong evidence that GSK’s days of underperformance are disappearing into the rear-view mirror. Buy.
Last IC view: Buy, 1,464p, 2 November 2022
| GSK (GSK) | ||||
| ORD PRICE: | 1,435p | MARKET VALUE: | £58.7bn | |
| TOUCH: | 1,434-1,435p | 12-MONTH HIGH: | 1,843p | LOW: 1,281p |
| DIVIDEND YIELD: | 4.3% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 247p* | NET DEBT: | 170% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2018 † | 30.8 | 4.80 | 113 | 100 |
| 2019 † | 33.8 | 6.20 | 144 | 100 |
| 2020 † | 34.1 | 6.97 | 176 | 100 |
| 2021 † | 24.7 | 3.60 | 82.9 | 100 |
| 2022 | 29.3 | 5.63 | 111 | 61.25 |
| % change | +19 | +56 | +34 | -39 |
| Ex-div: | 23 Feb | |||
| Payment: | 13 Apr | |||
| *Includes intangible assets of £21.4bn, or 522p a share. † 2021 results and prior year per share figures restated to reflect the demerger of the consumer healthcare business and 4-for-5 consolidation | ||||
