Haleon hails resilient power brands

Management at Haleon (HLN), formerly the consumer health arm of GSK (GSK), is the first to admit that the group’s “power brands” are the major drivers of its growth. This is a cohort that includes Sensodyne toothpaste and Panadol painkillers, among other recognisable brands.

Consumer attachment to these brands has allowed Haleon to pass on input cost increases in the six months to the end of June without hurting volumes. The group has now upgraded its organic growth guidance to 7-8 per cent for the full financial year, up from 4-6 per cent previously.

Oral health was Haleon’s standout performer in sales terms – bringing in nearly £1.6bn in the first half. However, respiratory health grew most rapidly, with revenue up almost 23 per cent on the same period last year.

This growth was largely realised in the first quarter, when a bad cold and flu season sent consumers out in search of products such as Theraflu and Robitussin cough syrup. However, the group has not been wholly immune to the impacts of inflation – with its operating profit margin falling 40 basis points in constant currency to 22.2 per cent.

Perhaps more concerning for shareholders is the fact that Pfizer (US:PFE) intends to begin offloading its 32 per cent stake in the business – a legacy of a former tie-up with GSK. Haleon’s one-time parent company also owns a 13.5 per cent stake in the spin-off, which it is likely to sell.

“The overhang from both GSK and Pfizer looking to exit these positions [...] in our view, puts a cap on share price performance in the near term,” wrote Stifel analysts in a note. With the shares trading at around 18 times projected full-year earnings, we’d argue that Haleon remains fairly valued for now. Hold.

Last IC View: Hold, 318p, 2 March 2023