26th Apr 2023 14:35
(Alliance News) - Derren Nathan, head of equity research at Hargreaves Lansdown, said that GSK PLC got off to a "healthy start" to 2023, despite the pharmaceutical firm reporting a slip in first quarter sales.
In the quarter, GSK's turnover totalled GBP6.95 billion, down from GBP7.19 billion the previous year.
The company said its sales performance in the quarter reflected lower Covid-19 solution sales compared to the previous year. When excluding this Covid-related business, sales grew 10% at constant exchange rates.
Key growth drivers included Shingrix for shingles, meningitis vaccines, oral two-drug regimen and long-acting HIV medicines, Benlysta in immunology, Nucala and Trelegy in respiratory, which combined contributed more than 40% of sales, GSK said.
The London-based firm reported its pretax profit was GBP1.91 billion, down 8.6% from GBP2.09 billion the year prior. Adjusted operating profit, meanwhile, rose by 8% on a year before to GBP2.09 billion, and adjusted operating profit margin was 30.1%, up 3.1 percentage points.
Hargreaves Lansdown's Derren Nathan argued that GSK was now a "leaner beast" following its demerger from consumer healthcare products company Haleon PLC in July of last year.
"[GSK's] pipeline is progressing well and looking ahead there's 9 programs pending approval from the medical authorities before the end of this year. The recently proposed USD2 billion acquisition of Bellus Health adds to that pipeline, with a late stage candidate for adult patients with refractory chronic cough," he said.
"Execution of the growth plan so far is impressive and we don't think that's reflected in the valuation which is below both the long-term average and its peer group."
Shares in GSK fell 1.4% to 1,479.20 pence on Wednesday afternoon in London. Over the past 12-months, the stock is down 17%.
Victoria Scholar, head of investment at interactive investor, explained that many investors have been shifting towards "defensive sectors" like pharmaceuticals this year amid the "sluggish" economic backdrop. This, she argued, has provided a tailwind for stocks like GSK which is up over 6.7% in the past six months and up 2.6% in the year-to-date.
However, Scholar continued, GSK is still underperforming the wider FTSE 100 which is up by more than 11% over the last six months. The ii analyst argued this underperformance reflected investor concerns about the strength of GSK's drug pipeline.
"GSK has been pursuing inorganic growth instead, most recently with its acquisition of Bellus Health for USD2 billion which offers respiratory drugs," Scholar suggested.
On Wednesday, GSK's Chief Executive Emma Walmsley confirmed that the firm is aiming to strengthen its pipeline organically as well as through "targeted business development."
"We are very focused on our upcoming launches, including our potential RSV older adult vaccine, and on continuing to strengthen our pipeline - both organically with several positive late-stage read-outs already this year, and through targeted business development. This continued momentum is also supporting our confidence in delivering our medium and long-term growth ambitions," Walmsley said.
GSK affirmed its full-year guidance as part of its first quarter update, expecting turnover growth of between 6% and 8% and adjusted operating profit to increase between 10% and 12%.
It noted that it now expects first half and second half turnover growth to be broadly similar, and adjusted operating profit growth to be lower in the first half of 2023 and higher in the second half.
Sean Conroy, research analyst at Shore Capital, said market consensus for 2023 continues to look "within guidance" but noted that this might "nudge up slightly" on the increased expectations for GSK's general medicines.
"Upcoming US Food & Drug Administration decisions for its RSV vaccine candidate (Arexvy) and momelotinib can both be expected in [the second half of 2023], with the former looking nailed on, in our view; data from the second RSV season are expected available ahead of the next [Advisory Committee on Immunization Practices] meeting (June) and could support upgrades," Conroy said.
Shore placed its fair value for GSK at 1,850 pence. Conroy said this implied a 12 times price-to-earnings ratio in 2024. This, he said, was still at a discount, reflecting questions around GSK's ability to deliver long-term growth, but also encompassing the view that a value disconnect exists at Zantac, which, he noted, continues to weigh on the share price.
GSK, amongst others, has come under pressure from accusations that heartburn treatment Zantac causes cancer. Its consumer healthcare spin-off Haleon is implicated, as are peers Sanofi SA and Pfizer Inc.
By Heather Rydings, Alliance News senior economics reporter
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