Management at GlaxoSmithKline (GSK) seems to have finally heeded investor calls by increasing focus on the drugs pipeline. These decent half-year numbers – which were buoyed by the absence of a major competitor to the group’s top-selling drug, Advair – were outshone by the group’s new approach to research and development (R&D). GSK will now focus on genetics and the immune system, helped by its new four-year collaboration with consumer genetics company 23andMe.
But investors will be disappointed that management failed to address the rumours that it is considering spinning out the consumer health division, particularly as the recent buyout of Novartis’s consumer health assets has stretched net debt to 2.8 times 2017 operating profits. Revenues in the over-the-counter business were up 2 per cent at constant currencies to £3.8bn, but its operating margins still fell woefully short of those achieved by the pharmaceutical and vaccines businesses.
The latter was, once again, GSK’s star performer. Revenues rose 14 per cent in the period thanks to the successful launch of shingles vaccine Shingrix. Forecast sales of £600m to £650m from this product encouraged management to upgrade its estimates for the year to between 7 and 10 per cent constant currency EPS growth. Brokers may increase their guidance in due course, but when we went to press, Shore Capital was forecasting annual EPS of 104p (111p in 2017).
| GLAXOSMITHKLINE (GSK) | ||||
| ORD PRICE: | 1,584p | MARKET VALUE: | £78.6bn | |
| TOUCH: | 1583-1585p | 12-MONTH HIGH / LOW: | 1,607p | 1,236p |
| DIVIDEND YIELD: | 5.1% | PE RATIO: | 47 | |
| NET ASSET VALUE: | 74p* | NET DEBT: | £23.9bn | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 14.7 | 1.37 | 17.7 | 19.0 |
| 2018 | 14.5 | 1.72 | 20.2 | 19.0 |
| % change | -1 | +25 | +14 | - |
| Ex-div: | 09 Aug | |||
| Payment: | 11 Oct | |||
| *Includes intangible assets of £23bn, or 465p a share | ||||
