GlaxoSmithKline Plc (GSK.L) is a healthcare company, which focuses on the manufacture, commercialisation, and development of pharmaceuticals vaccines and consumer healthcare products. It offers drugs for the treatment of cancer, HIV, anti-viral, metabolic, anti-bacterial, rare diseases, cardiovascular and urogenital, immuno-inflammation, respiratory, central nervous system (CNS), and dermatology. The company offers over-the-counter (OTC) products for pain, relief, nutrition, skin health, oral health, and gastrointestinal disorders. The company's total outstanding market capitalisation stood at £75.09 bn and dividend yield stood at 5.14% (as on March-25-2019).

Financial Overview (FY 2018, £million)


The company reported revenue of £30,821 million for the year ending December 2018 as compared to £30,186 million in 2017 for the same period. There was an increase of 2.10 per cent in revenue of the company due to a growth in HIV revenue, new respiratory products, influenza vaccines, Hepatitisde vaccines, Oral health, Wellness and increase in sales of Shingrix in the US market.

In FY18, GSK reported sales growth in all its three segments, Pharmaceuticals business was down by 0.04 per cent to £17,269 million, Vaccines business surged by 14.22 per cent to £5,894 million, and Consumer Healthcare business decreased by 1.19 per cent to £7,658 million respectively.

Under the Pharmaceuticals business segment, respiratory products sales were down by 0.9%, HIV sales increased by 8.55%, Immuno-inflammation sales were up by 25.2%, and Established Pharmaceuticals sales dipped by 7.39% respectively on Y-O-Y basis.

Under the Vaccines business segment, Meningitis sales were down by 1.01%, Influenza vaccines turnover climbed by 7.17%, Shingles sales increased to £784 million, and Established Vaccines sales decreased by 1.44% respectively.

Under the Consumer Healthcare business segment, Wellness sales were down by 1.52%, Oral care products sales increased by 1.22 per cent, Nutritional sales decreased by 5.44%, and Skin health sales dipped by 3.98% respectively on a year-on-year basis.

The company reported a gross profit of £20,580 million, up by 4% compared to its FY17 gross profit. Operating profit and profit before tax grew significantly in FY18 and were up by 34.16% and 36.17% respectively as compared to its FY17 numbers. Net Profit (Attributed to Shareholders) in FY18 grew by 136 per cent at £3,623 million.

GSK’s gross margin of 68.5% during FY18 is trending towards the industry median of 72.3%, although GP margin in FY18 was a bit lower than the FY17 GP margin. EBITDA margin of 32.3% for FY18 stood considerably higher than the industry median of 24.6%. In FY18, Pre-tax and Post-tax margins of 15.6% and 13.5% surged when compared with the industry average of 9.9% and 6.7% respectively. At liquidity front, GSK’s liquidity position was much lower than the industry median of 1.93 in terms of current ratio. The company is highly leveraged as compared to its peers.

Recent News
On February 5, 2019, GSK and Merck announced their strategic pact to develop and distribute, M7824 immunotherapy.
On January 22, 2019, GSK notified exchange that the company had completed the acquisition of TESARO, an oncology-focused pharmaceutical company, for a total cash consideration of $5.1 billion approximately.
On January 21, 2019, GSK announced that Philip Hampton, Non-Executive chairman at GSK had shown its intention to step down from his post.
On December 19, 2018, GSK announced that GSK and Pfizer Inc are going to combine their consumer health businesses to form a world leading Consumer Healthcare Joint Venture.
On December 3, 2018, Company informed to sell off its Horlicks brand and other consumer healthcare nutrition products to the Dove soap maker Unilever.
 
Share Price Performance

Daily Chart as at Mar-13-19, before the market close(Source: Thomson Reuters)
 
On 13th March 2019, at the time of writing (before market close, GMT 12:15 PM), GSK shares were trading at GBX 1,511.6, down by 0.026 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,648.80/GBX 1,269.80. At the time of writing, the share was trading 8.27 per cent lower than its 52w High and 19.04 per cent higher than its 52w low. Stock’s average traded volume for 5 days was 5,143,281.20; 30 days - 6,765,110.27 and 90 days - 8,223,064.27. The average traded volume for 5 days was down by 23.97 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.0, reflecting same directional movement with the benchmark index. The outstanding market capitalisation was around £75.09 billion.

Valuation Methodology

Note: All forcasted figures and peers selection have been taken from the  thomson reuters

Conclusion
GlaxoSmith is a giant pharmaceutical and consumer healthcare company with strong fundamentals and growth prospects. The company has relatively high margins compared with its peers operating within the same business. Based on strong fundamental performance and the valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 1,512.00 (as on 12th March 2019) with single-digit upside potential based on 10.62x NTM EV/EBITDA on FY19E EBITDA.

 

Reckitt Benckiser Group Plc

Reckitt Benckiser Group Plc (RB) is a consumer health and hygiene company that manufactures and markets household, toiletry and health care products. These consist of air fresheners, laundry products, dishwashing detergents, disinfectant sprays, water softeners, household cleaners, and personal care products. It also sells over-the-counter (OTC) drugs, cough and congestion tablets. Sinus relief products, gastric liquids, hair removal and pest control products. The company's total outstanding market capitalisation stood at £43.36 bn and dividend yield stood at 2.66% (as on March-25-2019).

Key Brands:Air Wick, Bang, Calgon, Clearasil, Cilit Bang, Dettol, Durex, Finish, Gaviscon, Harpic, Lysol, Mortein, Mucinex, Nurofen, Scholl, Strpsils, Vanish, Veet, and Woolite.

Product Portfolio:Health, Hygiene, Home and Portfolio brands.

Financial Overview (FY18, £million)
For FY18, the company reported net sales of £12,597 million, up by 3.0% on both pro-forma and LFL basis, including consideration of their MJN business for a full 12 months. At constant currency basis, company reported a sales growth of 15 per cent. Net Finance cost stood at £325 million in FY18 compared with £238 million in FY17, increased significantly due to the acquisition of MJN in mid-2017. In the financial year 2018, Net income attributable to shareholders stood at £2,161 million, dipped by 65 per cent as compared with FY17 data, due to an exceptional item of £3,024 million in relation to the gain on sale of the Reckitt food business, US tax reform of £1,421 million and an investigation charge by US Department of Justice of £296 million. On an adjusted basis net income was up by 4% at £2,410 million. The Company reported adjusted diluted earnings per share of 339.9 pence for FY18, up marginally by 10p against the previous financial year. The Board of Reckitt Benckiser announced a final dividend of 100.2 pence and full-year dividend stood at 170.7 pence per share, reflecting a surge of 3.9 per cent against the FY17 full-year dividend of 164.3 pence per share. Free cash flow for FY18 stood at £2,029 million compared with £2,129 million in FY17.
Gross margin for FY18 stood at 60.6 per cent, increased by 0.9 per cent as compared to the previous year. Lower margin was driven by a combination of input costs and a tough pricing environment in Europe. EBITDA margin of 28.8% for FY18 stood considerably higher than the industry median of 18.7%. Net margins of 17.4% surged when compared with the industry average of 9.5% in FY18. ROE stood at 15.3% which was remarkably lower than the industry median of 17.8%. Although at liquidity front, Reckitt liquidity position was lower than the industry median of 0.68 in terms of current ratio. The company is slightly high leveraged as compared to its peers.

Recent News
As per board announcement on 16th Jan’19, Rakesh Kapoor had shown his intention to retire as Chief Executive Officer (CEO) of the company by the end of 2019. He is been with the company from the last 32 years and active as CEO for more than 8 years.
In November 2018, Reckitt group exercised a direct-to-consumer deal with SCI regarding the Enfamil formula.

Share Price Performance

Daily Chart as on Mar-13-19, before the market close. (Source: Thomson Reuters)
 
On 13th March 2019, at the time of writing (before market close, GMT 12:45 PM), Reckitt shares were trading at GBX 6,211.95, up by 1.430 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 7,174/GBX 5,255. At the time of writing, the share was trading 13.4 per cent lower than its 52w High and 18.2 per cent higher than its 52w low. Stock’s average traded volume for 5 days was 1,151,396.60; 30 days - 1,282,785.37 and 90 days - 1,295,831.49. The average traded volume for 5 days was down by 10.24 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.94, reflecting low volatility as compared to the benchmark index. The outstanding market capitalisation was around £43.36 billion.
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Valuation Methodology

Note: All forcasted figures and peers selection have been taken from the  thomson reuters 
 
Conclusion
Reckitt Benckiser Plc has a strong business model and strong brand positioning in Asia, Europe and American market, with significantly high EBITDA and Net Margin compared with the peers operating in the same sector. Based on strong fundamental performance and the valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 6,127 (as on 12th March 2019) with single-digit upside potential based on 4.10x NTM EV/Sales on FY19E Sales.

*The buy recommendation is also valid for the current price as covered in the report (as on Mar-13-19).

Note- GBp or GBX are interchangeably used for Pence Sterling.

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