Haleon brushes off litigation concerns

The market reacted positively to Haleon’s (HLN) first statutory figures since July’s spin-off. It will be some time before we can gauge how it will fare as a standalone entity, but shareholders can take heart from like-for-like net sales growth of 11.6 per cent in the six months to 30 June. That was partly due to sales linked to the re-emergence of common respiratory illnesses as the omicron variant waned, while sales volumes for well-known consumer brands such as Panadol also increased markedly. Adjusted operating profit was up by a fifth to £1.2bn, an increase of 15.5 per cent at constant currencies and allied to a 90-basis point increase in the underlying margin to 23 per cent.

So far, so good, but market sentiment towards the consumer healthcare group has been clouded by potential US litigation linked to the heartburn drug Zantac. GSK (GSK) and Pfizer (US:PFE), partners in the joint venture that was spun out to become Haleon, had both previously sold Zantac, so a question mark hangs over the issue of liability. Haleon has rejected requests to provision for costs related to lawsuits across the pond, further indicating that its erstwhile partners’ original agreement “only covers their consumer healthcare businesses as conducted when the joint venture was formed in 2018”, a point at which neither company was marketing Zantac in North America.

Prior to results day, the shares were drifting lower, a partial consequence of the litigation issue, but also due to worries that consumers might swing towards healthcare generic brands as household budgets tighten. They now trade at a 7 per cent discount to net assets, perhaps surprising given that management is guiding for like-for-like net revenue growth of 6-8 per cent, but it’s too early to make a call on prospects going forward. Hold.

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