21st Dec 2023 13:06
(Alliance News) - AJ Bell on Thursday noted "four noteworthy stocks for 2024", but warned investors to be cautious around GSK PLC.
"A major overhaul of the group structure, four profit forecast upgrades in the past two years and a promising drug development pipeline are yet to boost shares in GSK, which can point to little by way of progress in 2023. But the combination of increased forecasts and a static share price leads to a valuation that looks tempting in absolute terms, relative to the company’s own growth targets and also in the context of the price tags attached to its global peers," said AJ Bell's Russ Mould.
Shares in the Brentford, West London-based pharmaceutical maker were down 0.5% to 1,438.40 pence each in London on Thursday afternoon. Over the last 12 months, the stock is down just 1.0%, the wider FTSE 100 index is up 2.3%.
GSK's most recent forecast upgrade was in November.
At the time, GSK said it expects turnover on a constant exchange ratio basis and excluding Covid solutions to grow between 12% and 13%, compared to a prior range of 8% to 10%. Adjusted operating profit is forecast to rise between 13% and 15%, compared to 11% to 13% before. Adjusted earnings per share are set to climb 17% to 20%, upped from a previous guidance of 14% to 17%.
Further, for 2023, GSK expects to declare a total dividend of 56.5p for 2023, up 15% from 49p in 2022.
In November, Chief Executive Officer Emma Walmsley said: "We have clear momentum as we look ahead to deliver our 2026 outlooks. GSK's longer-term outlook also continues to strengthen, with progress in our vaccines pipeline, the development of our ultra long-acting HIV portfolio and significant new prospects in respiratory."
Mould added that GSK is now focused purely on the development and sale of medicines and vaccines. "That immediately offers the prospect of exposure to long-term demographic trends such as population growth (in developing markets) and increased longevity (in developing and developed arenas)," he added.
"The relatively predictable demand, high margins and consistent cashflow that can result from a successful drug development model can also appeal at times of economic uncertainty, so GSK may appeal to those investors who fear that an unexpected recession could creep up on the UK equity market next year."
Despite this, GSK shares stand at a stand still, amid a "raft" of lawsuit.
It was only in October that GSK reached a confidential settlement in the Cantlay/Harper case, which alleged that the firm's heartburn medication can cause cancer.
The case, which concerned GSK's Zantac, was filed in California state court. It was due to begin trial on November 13, but will now be dismissed.
The drug has been a sticking point for GSK in recent months, following numerous lawsuits allegedly linking the heartburn drug with cancer.
In June, GSK reached a settlement with James Goetz, a claimant in Zantac litigation. The case that Goetz filed in California state court, which was set to begin in July and alleged links between the drug and cancer, was dismissed.
Mould commented: "One reason for the turgid share price performance is the raft of lawsuits that allege there is a link between the heartburn drug ranitidine (better known as Zantac) and cancer. But the lowly valuation prices in a lot of bad (legal) news and the rejection of lawsuits in Florida and Canada, and a settlement in California whereby GSK did not admit liability, mean the news flow here has not been as bad as was first feared when the legal cases became public, and the share price tumbled, in summer 2022."
AJ Bell also said investors should be "balanced" with Legal & General Group PLC, "adventurous" with Ashmore Group PLC and "income seekers" with Lancashire Holdings Ltd.
By Sophie Rose, Alliance News senior reporter
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