GlaxoSmithKline PLC

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.

Upcoming Results: On 27 October 2021, the Company is due for releasing its Q3 FY21 results.

Investment Rationale – SELL at GBX 1,513.60

• In FY21, GSK’s adjusted earnings per share is likely to be declined by mid-to-high single-digit percentage at constant exchange rates.
• The resurgence in the Delta variant of coronavirus can limit the Company’s ability to formulate, innovate and launch new products.
• During H1 FY21, GSK also incurred a loss on disposal of £36 million, primarily due to the sale of interest in the associate Innoviva Inc.
• GSK’s stock price has fallen over 2% in the past year, reflecting a significant underperformance against the FTSE 100 benchmark index.
• From a technical standpoint, 14-day RSI (~50.08) is moving towards the overbought zone, and upside potential is skeptical.
• As per valuation metrics on a forward 12-month basis, Price/Earnings, and EV/EBITDA multiples of the GSK are overvalued as compared to the corresponding multiples of the Health Care industry.

Key Risks

• The likelihood of unsuccessful transformation of GSK into two standalone entities can impact the Company’s growth plans.
• 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.

Recent News

CEO Designate of new Consumer Healthcare: On 22 July 2021, Brian McNamara was appointed as the Chief Executive Officer (CEO) of new independent Consumer Healthcare Company.

Q2 FY21 Highlights (for the three months ended 30 June 2021, as on 28 July 2021) 

 (Source: Company Website)

• During Q2 FY21, GSK reported strong sales growth on the back of favorable prior year comparison and strong commercial execution.
• The effective cost control also supported the growth in adjusted earnings per share.
• The Group also continued strengthening of pipeline with FDA rolling review of cabotegravir, positive phase III headline results for daprodustat, and strategic collaborations with iTeos, Alector* and Halozyme.
• The Group is confident of delivering a meaningful improvement in revenue and margins in FY22.

One Year Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

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

Conclusion

The Covid-19 has presented significant challenges, which has diverted the government, commercial and medical attention from the markets. Moreover, operating difficulties can cap its growth as the Company could fail to capitalize on its pipeline and new product lines. Moreover, the global recession and rising input prices can also cause market volatilities. Therefore, it is prudent to liquidate the position at the current levels. The stock made a 52-week high and low of GBX 1,549.60 and GBX 1,190.80, respectively.

Based on the overvalued valuation multiples, macroeconomic uncertainties, overstretched technical stance, and macroeconomic uncertainties, we have given a “SELL” recommendation on GlaxoSmithKline PLC at the closing price of GBX 1,513.60 (as on 19 August 2021).

Chaarat Gold Holdings Ltd

Chaarat Gold Holdings Ltd (LON: CGH) is a FTSE AIM All-Share listed Gold Mining Company with operating assets in Armenia and other development stage assets in the Kyrgyz Republic.

Investment Rationale – SELL at GBX 24.00

• The Gold prices shall remain subdued in the short-term due to the strengthening of the US Dollar and apprehensions regarding the early asset tapering by the Federal Reserve.
• The stock has fallen over 27% in the past year, reflecting a significant underperformance against the benchmark, FTSE AIM All-Share index.
• It is a lossmaking entity, which depends on external financial resources for growth strategy.
• As per valuation metrics on a forward 12-month basis, EV/Sales, Price/Earnings, and EV/EBITDA multiples of the Chaarat Gold Holdings Ltd are overvalued as compared to the corresponding multiples of the Metals & Mining industry.
• From a technical standpoint, 14-day RSI (~64.75) is in the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bolling Bands.

Risk Assessments

• The resurgence in Covid-19 cases due to the delta variant has significantly impacted consumer sentiments.
• The US Dollar strengthening and earlier asset tapering by Federal Government can impact the gold prices in the short-term.
• The labour absenteeism, high input prices, and dampened consumer spending can not only impact the demand outlook but also can also affect profitability.

Recent News

Chief Executive Officer Transition: On 5 August 2021, CGH unveiled that Artem Volynets decided to step down from his position as Chief Executive Officer (CEO) and Executive Director with immediate effect.

H1 FY21 Operational Update (for the half year ended 30 June 2021, as on 27 July 2021)  

(Source: Company Website)

• CGH produced 25,896 gold equivalent ounces (oz) from the Shahumyan mine production in Kapan, at an all-in-sustaining cost ("AISC") of USD1,063 /oz.
• The Group reported an unaudited standalone EBITDA contribution of US$13.5 million in H1 FY21, reflecting stronger operational performance against USD4.1 million in H1 FY20.
• The third-party ore production also increased significantly by 600% year-on-year in H1 FY21.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

The gold market is cyclical and sensitive to economic changes and other factors beyond the Company's control. The strengthening of the US dollar can cause a further decline in the gold price, affecting the revenue of the Company's revenue-generating capacity. Moreover, the recent upsurge in cryptocurrency could also outshine the prices of gold and other precious metals. The loss-making entity has been showing a bearish price momentum, and hence, it is rational to liquidate the position at the current levels. The stock made a 52-week high and low of GBX 42.00 and GBX 20.20, respectively.

Based on the gloomy outlook for gold prices, lossmaking financials, downward price trend, overvalued valuation multiples, and supported by the valuation conducted above, we have given a “SELL” recommendation on Chaarat Gold Holdings Ltd at the closing market price of GBX 24.00 (as on 19 August 2021).

*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.

Disclaimer 

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