GlaxoSmithKline PLC (LON: GSK) is a FTSE 100 listed multinational Healthcare Company, which operates with three global businesses that manufacture and conduct research on products related to pharmaceutical, consumer healthcare and vaccines. The Group was founded in the year 1715, with an apothecary shop in London and today, it has a workforce of over 99,000 people (including around 12,000 workers in the R&D division) across 95 countries. Geographically, the Group reports financial from predominantly three locations – United States (US), United Kingdom and Rest of World, while the US contributes the largest amount of turnover.

Upcoming Events

• Dividend: On 8 July 2021, GSK has scheduled the payment of Q1 FY21 dividend to the shareholders with a record date of 21 May 2021. The ex-dividend date was 20 May 2021.
• Results: On 28 July 2021, GSK has scheduled its Q2 FY21 results for release.
• Results: On 27 October 2021, the Company is due for releasing its Q3 FY21 results.

Growth Prospects

• Robust Pipeline: GSK has 19 vaccines and 40 medicines in its pipeline. It has substantial financial resources to invest in the pipeline and drive commercial execution with optimised cost base.
• New GSK - Growth and Performance: By capitalising on Specialty Medicines portfolio, high-quality Vaccines, and late-stage pipeline. GSK is targeting over 5% sales growth and over 10% operating profit growth on a CAGR basis between FY21 to FY26. On constant exchange rate basis, it has an ambition of more than £33 billion in sales by FY31. It has strengthened the balance sheet to support investment in growth. Meanwhile, cash generated from operations is anticipated to exceed £10 billion by FY26. The Group has also started the dividend policy at 45 pence per share for New GSK in FY23.
• Research and Development Capabilities: The Group has a wide range of tools and applications to support research related to the Coronavirus and is working in combination with multiple organisations, which can prove to be a gamechanger in the near term. The Company is closely monitoring the supply chain network and responding quickly to fluctuations in demand. GSK has also set a target of developing a billion fully recyclable toothpaste tubes by 2025, in partnership with Pfizer. It also reported a good immune response in rats for the second-generation vaccine developed in partnership with CureVac.

(Source: Company Website)

Risk Assessment

• Emerging Risks: Brexit uncertainties and the Covid-19 pandemic situation may impact the Company's supply chain, clinical trials, and growth plans. Also, the Group's priorities have been shifted due to the pandemic, which has slowed down the recruitment for clinical trials. Moreover, the healthcare industry is rapidly changing with the digital landscape, regulatory policies, and entrants of new players, leading to intense pricing pressure.
• Principal Risks: There are various inherent risks and uncertainties associated with the Company’s business model, such as unfavourable exchange rates movement, strict regulatory policies, product liability litigation, failure to obtain the necessary regulatory approvals, physical climate and environmental risk, information security risk, transformation risk pertaining to the separation of GSK into two entities, macroeconomic level risk, among others.

Now we will analyse some key fundamental and shareholders statistics of GlaxoSmithKline PLC. 

Recent News

Collaboration (On 22 June 2021): ViiV Healthcare (majority-owned by GlaxoSmithKline PLC) entered a global collaboration and license agreement with Halozyme for ENHANZE® drug delivery technology, used in the treatment and prevention of HIV.

Development and Commercialisation Collaboration (14 June 2021): For an anti-TIGIT monoclonal antibody, GSK signed a development and commercialisation collaboration with iTeos Therapeutics for EOS-448 (presently in phase 1 for advanced solid tumours).

FDA Approval (26 May 2021): In collaboration with Vir Biotechnology, GSK received Emergency Use Authorization (EUA) approval from US FDA (Food and Drug Administration) for sotrovimab (VIR-7831), which is used in the treatment of mild-to-moderate COVID-19 in paediatric and high-risk adult patients.

Phase 3 Clinical Study (27 May 2021): In partnership with Sanofi, GSK initiated the enrolment Phase 3 clinical efficacy study of the COVID-19 vaccine candidate.

Phase 2 Results (18 May 2021): For the interim Phase 2 clinical trial, GSK and Medicago unveiled positive interim Phase 2 results for an adjuvanted COVID-19 vaccine candidate.

Quarterly results for three months ended 31 March 2021 (as on 28 April 2021)

(Source: Company Website)

• During Q1 FY21, GSK’s results reflected a disruption from Covid-19 and year-on-year impact. However, the Company reconfirmed that its EPS guidance and FY21 guidance remained unchanged.
• On actual exchange rates (AER), total sales plunged 18% in Q1 FY21 against Q1 FY20, while EPS was down by 32% (AER) year-on-year.
• The net cash inflow from the operating activities was £331 million in Q1 FY21, with a free cash outflow of £3 million, reflecting reduced operating profit.
• For Q1 FY21, GSK declared a dividend per share of 19 pence, and it continued to expect a dividend per share of 80 pence for FY21.

Financial Highlights (for the fiscal year ended 31 December 2020, as on 03 February 2021)

(Source: Company Website)

• During FY20, GSK reported strong sales performance with 1% AER increase in sales to £34 billion. The adjusted EPS stood at 115.9 pence, reflecting a 6% decline on an AER basis.
• The effective cost control supported the adjusted EPS in line with FY20 guidance.
• With over 20 assets now in late-stage clinical trials, the Group also made strong progress on the Biopharma pipeline.
• For FY22, the Company also unveiled intentions to form a separate Biopharma and Consumer Healthcare Company.
• For FY20, the Company announced the dividend per share of 80 pence in total with 23 pence recommended for Q4 FY20.

Financial Ratios (FY20)

Share Price Performance Analysis

 (Analysis done by Kalkine Group)

On 1 July 2021, at 8:48 AM GMT, GlaxoSmithKline PLC’s shares were trading at GBX 1,431.00, up by 0.82% against the previous day closing price. The stock made a 52-week High and Low of GBX 1,669.80 and GBX 1,190.80, respectively.

GSK’s stock price sustained above the 20-day EMA (GBX 1,404.64) and 50-day SMA (GBX 1,370.95), reflecting a bullish momentum and acting as strong support levels. Adjacently, the MACD line trades below the centreline and forms a positive crossover with the signal line. On the technical chart, the next important support level is at GBX 1,173.42.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

 

Business Outlook Scenario

GSK reported solid growth in new pharmaceutical products, and it is on track to create a separate Consumer Healthcare Company in 2022. As a result, GSK reconfirmed FY21 guidance and expected mid to high-single-digit percent decline in adjusted EPS on a constant exchange rate basis. However, pharma revenue is expected to grow flat to low-single digits in FY21, while consumer healthcare revenue is expected to grow low to mid-single digits. Further, the Group is anticipating a notable contribution from Shingrix in H2 FY21 to meet the underlying demand of the Covid-19 vaccine. Overall, the Company is maintaining good momentum on the strategic priorities, and the fundamentals of GSK's business remained strong.

 (Source; Company Presentation)

Based on the decent trading momentum, robust forward sales position, strong cost control, sound financial position, promising sector prospects, with support from the valuation as done using the above method, we have given a “BUY” recommendation on GlaxoSmithKline PLC at the current market price of GBX 1,431.00 (1 July 2021, at 8:48 AM GMT) with lower double-digit upside potential based on 17.47x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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