Dividend nerves plague GSK

Indeed, 2017 results offer many reasons to be more optimistic about GSK. Revenues ticked up in all three of the group’s operating divisions, most notably a 6 per cent like-for-like increase in the vaccines business. Management also reaffirmed its promise that the pharma business “remains our main priority” and sales here rose 3 per cent at constant currencies thanks to the strong performance of new HIV drugs.

The increased commercial scale of the business has improved group operating margins, meaning adjusted group operating profits rose 12 per cent to £8.6bn, while net operating cash flow hit £6.9bn – a 6 per cent increase on the previous year – thanks to the improved group performance and positive currency movements.

But these numbers will not have answered all investor concerns. Management has admitted that its 2018 outlook is heavily dependent on respiratory drug Advair, which is facing competition for the first time. GSK’s new Shringrix shingles vaccine and Elipta triple inhaler are not expected to generate enough revenue to plug the forecast 53 per cent decline in US sales of Advair if a generic version of the drug is approved. This could dent earnings by 3 per cent. For now, broker Shore Capital is expecting adjusted EPS of 103p for the December year-end (108p in 2017).

Management may have poached AstraZeneca’s (AZN) medicines expert to head up its own research and development team and upped drugs investment by 8 per cent, but the pipeline is still rather threadbare. Meanwhile, the financial liabilities relating to the group’s two joint ventures have been increased again due to the changes in US tax laws. The value of the put options – which GSK would be forced to pay if any of its partners want to exit the joint ventures – now stands at £9.9bn.