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GSK beats Q2 forecasts

Revenues landed ahead of consensus expectations, helped by vaccine and pharma sales
July 28, 2021

 

  • The FTSE 100 pharma giant explained its consumer demerger plans last month
  • It will continue to invest in its drug pipeline this year

GlaxoSmithKline (GSK) did not have an easy ride into Wednesday’s half-year numbers. The FTSE 100 pharma giant has faced pressure in recent months to explain how it will demerge its consumer healthcare business, what the future growth plans are for its whittled-down biopharma business and how those ambitions will affect its financial statements. As reported by the Financial Times in April, activist investor Elliott Management has built a multi-billion pound stake in the company.

The group went some way to detail its intentions in June when it projected a compound annual revenue growth rate of more than 5 per cent over the next five years for ‘New GSK’, its pure pharmaceutical company, with an adjusted operating profit CAGR of more than a tenth. At an investor event, it said that sales could exceed £33bn in a decade’s time.

But, as Robin Hardy explored earlier in July, pharma is just one part of the GSK story. The group is splitting itself in two, spinning off the consumer division while asking investors to accept a much lower dividend in the process.

In any case, it should help sentiment around GSK’s shares that it topped analysts’ expectations in the second quarter. Revenues landed at £8.1bn, up 15 per cent at constant currencies and well ahead of consensus forecasts of £7.6bn.

Underpinning that improvement was a rise of almost a half in the group’s vaccine sales to £1.6bn, as its meningitis jab rocketed 46 per cent and sales of ‘established vaccines’ climbed 28 per cent.

GSK has also contributed to efforts to tackle Covid-19. It made £260m in sales pertaining to pandemic vaccines, of which £258m stemmed from its pandemic adjuvant (a substance in vaccines which can help create a stronger immune response) and £16m stemmed from the treatment sotrovimab.

Meanwhile, group pharmaceuticals sales rose 12 per cent at constant currencies to £4.2bn. Total operating profits dipped by 31 per cent in the first half to £3.4bn – largely reflecting the profit on GSK’s disposal of Horlicks and other consumer brands in the prior period.

GLAXOSMITHKLINE (GSK)  
ORD PRICE:1,395pMARKET VALUE:£ 69.8bn
TOUCH:1,394-1,395p12-MONTH HIGH:1,632pLOW: 1,191p
DIVIDEND YIELD:4.3%PE RATIO:21
NET ASSET VALUE:431p*NET DEBT:102%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)**
201916.74.4877.038.0
202015.52.9949.438.0
% change-7-33-36-
Ex-div:19 Aug   
Payment:07 Oct   
*Includes intangible assets of £40bn or 79p a share**Half-year dividend comprises two quarterly interim dividends of 19p each for Q1 and Q2

GSK continues to expect adjusted EPS to decline by mid-to-high-single-digits this year, excluding Covid product earnings. It also plans to increase investment in its pipeline. One question now is whether the market has undervalued GSK’s drug development potential, which has arguably been overshadowed by its broader structural changes. We’re cautiously optimistic. Hold.

Last IC View: Robin Hardy: GSK demerger: can 1+1-½ = 3?