Earlier this year – a week or two after I published an article on the British multinational pharmaceutical company GlaxoSmithKline (GSK) HERE, I bought shares in the FTSE 100 giant for the first time in well over a decade. It has worked out pretty well so far, but the story is certainly evolving because - as I noted here in early May - ‘GlaxoSmithKline is fortunately about so much more than the current CEO’. I am sure you have heard about the ‘strategic overhaul of GlaxoSmithKline by Dame Emma Walmsley’ which was recently announced.
After all, she was excited to predict that there is anticipated to be ‘more than 5% sales and 10% adjusted operating profit CAGR 2021-26’. However I am sure many investors are wondering why the company also talked about a new GlaxoSmithKline dividend payment of 45 pence a share in 2023, considerably lower than the 55 pence in 2022 and 80 pence in previous years. Given most GlaxoSmithKline investors in recent years have been very dividend-focused, just what is going on given the company also talked about a focus on opportunities in areas such as infectious diseases, HIV, oncology, and immunology and respiratory?
The other really important evolution is the creation of the ‘new world leader in Consumer Healthcare’, with over £10 billion of net sales and five global categories with a #1 positioning already aided by a bunch of brands including Sensodyne, Poldent, Parodomtax, Voltaren, Panadol, Advil, Theraflu, Otrivin and Centrum. Sadily - in an ageing global world - we are bound to need these all a lot more over time. Back in February I observed that the deal GlaxoSmithKline forged with US giant Pfizer to form a new world-leading consumer healthcare joint venture was inevitably going to lead to a spinoff. I have seen this so many times in the US pharmaceutical sector over the last couple of decades and hence it is no surprise that in one year the split will occur. Based on the future growth scope of this business, you can imagine a market listed rating which will put the rest of the business at a light multiple. No surprise that the continuing GlaxoSmithKline itself will retain a 20% shareholding. Now you can start to understand too why the headline GlaxoSmithKline dividend is going down.
You can also understand why I have not been surprised too over recent months that the company’s big shareholder Elliott Management is hassling it. The risky part of this business going forward is not going to be in the consumer healthcare side, but in the trickier world of core pharmaceutical efforts. And this brings us back to the company’s CEO again. The company has plenty of plans with the names of over ten late-stage products in a variety of areas (and late stage pipeline scope of over £20 billion of potential net sales), but running this sort of company is intellectually tricky. I am not sure it naturally suits the current CEO, for whom it would be smarter (in my opinion) to have joined the consumer healthcare business, which is much more about marketing and ESG chats. I might be wrong of course, but I think the Elliott Management team do not have a particularly different opinion. New CEO time over the next year? The good news for her - apart from the millions paid - is that even at today’s share price the pharmaceutical GlaxoSmithKline business is not crazily priced. Back in last February when I purchased the shares, I did so with a fifteen quid target price without working too hard. That still remains my view and hence why I continue to hold the shares. Over the next year or two we will find out a bit more whether further price appreciation can be sourced from both the consumer and pharmaceutical sides. If it is both, then my estimate will prove conservative. And whatever happens you will get some dividends too. In short, it is hardly a return to the times in the 1980s and 1990s that GlaxoSmithKline was really exciting, but my instinct today is that you can make a bit of money here still. Buy.
Filed under: GlaxoSmithKline, [email protected] Capital, Hurricane Energy, Argo Blockchain, MyHealthChecked
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