Investors who condemned GlaxoSmithKline’s (GSK) past strategy of bulking up its consumer health division will no doubt be relieved to hear that its "top priority is to improve in pharmaceuticals". Spending on related research and development rose 23 per cent at constant currencies to £1.6bn in the first half and the company recently announced £140m of investment in its medicine manufacturing sites. Meanwhile, revenue from new asthma drugs more than offset the decline in established respiratory products – the biggest single contributor to group revenue – meaning overall pharmaceutical sales ticked up 4 per cent at constant currencies.
But could this new strategy be too little, too late? GSK’s pipeline of new drugs still looks woefully empty, with just three projects currently in the final phase of clinical trials. The group is also still very reliant on asthma drug Advair, which contributed just under a fifth of pharmaceutical sales in these numbers.
The group’s new dividend policy also begs a question. Although GSK has confirmed its 80p dividend for 2018, it aims to build its free cash flow to 1.25-1.5 times the total payout. Free cash flow may have risen to £368m thanks to a 4 per cent constant-currency increase in adjusted operating profit, but that's still well below the £1.9bn in dividends paid in respect of the period. Broker Liberum, however, doesn’t have any concerns about the sustainability of GSK’s dividend and has forecast adjusted EPS of 112p in the year to December 2017, from pre-tax profit of £7.9bn, compared with 101p last year.
| GLAXOSMITHKLINE (GSK) | ||||
| ORD PRICE: | 1,518.5p | MARKET VALUE: | £74.7bn | |
| TOUCH: | 1,518-1,518.5p | 12-MONTH HIGH/LOW: | 1,736p | 1,448p |
| DIVIDEND YIELD: | 5.3% | PE RATIO: | 38 | |
| NET ASSET VALUE: | 16.5p* | NET DEBT: | £14.8bn | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p)** |
| 2016 | 12.8 | 0.24 | -3.2 | 38 |
| 2017 | 14.7 | 1.37 | 17.7 | 38 |
| % change | +15 | +467 | - | - |
| Ex-div: | 10 Aug | |||
| Payment: | 12 Oct | |||
| *Includes intangible assets of £24.3m, or 495p a share | ||||
| **Ex-div and payment dates refer to the 19p second-quarter dividend | ||||
