GlaxoSmithKline PLC (LON: GSK) – Sustainable Pipeline of transformational vaccines and medicines.

GlaxoSmithKline PLC is a FTSE 100 listed company focused on the research, development and manufacturing of innovative medicines, vaccines, and consumer healthcare products. Moreover, GSK operates across three broad business divisions under Pharmaceuticals, Vaccines and Consumer Healthcare. The Pharmaceuticals business encapsulates a portfolio of medicines used for HIV, respiratory and oncology. Furthermore, the Vaccines segment helps people against infectious diseases. Consumer Healthcare involves oral health, pain relief and nutritional supplements. Overall, GSK has around 94,000 employees across 96 countries, with around 36,000 suppliers.

The Annual General Meeting of GSK is going to be held on 05 May 2021.

  

(Source: Company presentation) 

Recent Trend of Dividend Payments

(Source: Company result)

The Company will pay a fourth interim dividend of 23 pence per share with respect to the fourth quarter of FY20 on 08 April 2021. Moreover, the ex-dividend date was 18 February 2021. The Company had already paid a third interim dividend of 19 pence per share on 14 January 2021. Thus, the total FY20 dividend stood at 80 pence per share, the same as the total dividend paid during FY19.

Growth Prospects and Risk Assessment

GSK has delivered around 2.2 billion packs of medicines, over 580 million vaccine doses and 3.8 billion consumer healthcare products. Moreover, GSK had a strategic priority to prepare for the segregation into two separate leading companies. The Company would split the operations into new standalone Biopharma and Consumer Healthcare companies by 2022. Furthermore, the Company would continue to seek opportunities to strengthen the R&D pipeline. GSK had made significant progress during 2020 as it received nine major approvals for medicines in respiratory, oncology, HIV, and immuno-inflammation. Overall, the R&D pipeline consists of 57 vaccines and medicines, predominantly in the areas of infectious diseases, oncology, and immune-mediated diseases.

(Source: Company presentation)

The Company had around 20 assets in late-stage development, which would be expected to launch by 2026.

However, the performance can be significantly impacted by the stringent regulatory policies, patient safety, Anti-bribery and corruption, political and macroeconomic disruptions, failure to maintain quality of vaccine and medicine, environmental sustainability, information security, and acquisition risk. The Group is also exposed to the risk associated with the proposed separation of GSK’s Consumer Healthcare business. 

After understanding growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of GlaxoSmithKline PLC.

A Glimpse of Business Segments (FY20 Revenue Split)

Recent Developments

On 06 April 2021: The Company has appointed Dr Anne Beal, as a Non-Executive Director, with effect from 6 May 2021.

On 16 March 2021: GSK had announced the start of Phase 3 clinical trial of Medicago's plant-derived COVID-19 vaccine candidate as part of the ongoing Phase 2/3 study.

On 11 March 2021: GSK and Vir Biotechnology had announced positive development regarding VIR-7831 and updated that it would reduce hospitalisation and risk of death in the early treatment of adults with COVID-19.

(Source: Company presentation)

Financial and Operational Highlights (for the twelve months ended 31 December 2020 (FY20), as of 03 February 2021)

(Source: Company result)

• GSK had achieved a robust sales performance during 2020 with an increase of 3% CER (Constant Exchange Rate) to £34.10 billion as compared with the previous year.
• The turnover across the Pharmaceuticals segment and the Vaccines division had shown a decline at 1% CER during FY20, while the consumer healthcare segment had shown an increase of 14% CER in sales during FY20, mainly due to the inclusion of the Pfizer portfolio.
• The Company had witnessed a growth in Trelegy, Nucala, Relvar/Breo, Juluca and Dovato during FY20 in the Pharmaceuticals division.
• The total operating profit for FY20 had increased to £7,783 million as compared with £6,961 million in FY19. Moreover, the total operating margin remained around 22.8%.
• The total earnings per share was 115.5 pence during FY20, while it was 93.9 pence in FY19. The increase was due to the net profit on disposal of Horlicks and other consumer healthcare brands.
• The Company saw a strong cash flow generation, with an increase in the free cash flow of £5,406 million during FY20, while it was £5,073 million during FY19, illustrating increased proceeds from the sale of intangible assets, reduced legal payments and improved operating profits.
• Meanwhile, the net cash inflow from operating activities stood at £8,441 million during FY20.

Financial Ratios (FY2020)

Share Price Performance Analysis

 (Source: Refinitiv, Thomson Reuters)

On 08 April 2021, at 11:02 AM GMT, GlaxoSmithKline PLC’s shares were trading at GBX 1,309.76, up by around 0.70% against the previous day closing price. Stock 52-week High and Low were GBX 1,748.55 and GBX 1,190.80, respectively.

From a technical standpoint, 20-day SMA (GBX 1,288.39) supports an upside potential. 

In the last ten years, GlaxoSmithKline PLC’s stock price has delivered a return of ~87.23% return as compared to ~66.45% return of the FTSE 100 index and ~74.49% return of FTSE All-Share Pharmaceuticals & Biotechnology Index, which shows that the stock has outperformed the benchmark index and the benchmark sector. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company had delivered accelerated progress towards strengthening & advancement of its R&D pipeline during FY20 and would continue to grab market opportunities in 2021. Moreover, the Company is well placed to separate Biopharma and Consumer Healthcare companies in 2022. GSK had managed to provide revenue guidance for 2021 for three major divisions. The revenue for the Pharmaceutical segment is anticipated to remain flat or grow at low single digits. Furthermore, GSK expected that the consumer healthcare revenues would increase by low to mid-single digits, excluding divestment of brands.

However, the Company had anticipated disruption in the Vaccines division due to the Government’s priority towards Covid-19 vaccination programmes. It would impact adult and adolescent immunisations, particularly Shingrix in the US. GSK highlighted that it would expect the adjusted earnings per share to decline by mid to high-single-digit percent on a constant exchange rate in FY21. The key focus would also be delivering integration and restructuring programmes. Overall, the Company has shown improvement in financial performance for FY20 while maintaining good momentum on the strategic priorities and remain well-positioned to drive long term business growth.

(Source: Company presentation)

Considering the impressive pipeline of medicines and vaccines, strong momentum on strategic priorities, competitive growth outlook for two new companies, sound business model, decent operating and financial performance, robust cash generation, improved profitability margins, a strong contribution from key respiratory growth drivers, consistent dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on GlaxoSmithKline at the current price of GBX 1,309.76 (as on 08 April 2021 at 11:02 AM GMT), with lower-double digit upside potential based on 14.72x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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