Sometimes FTSE 100 companies get a bit bloated and something needs to be done. Insurer Aviva suffered that way and has been restructuring in recent years to become significantly leaner. GlaxoSmithKline (LSE: GSK), meanwhile, is adopting a different approach by splitting its business. But since we heard the news, the GSK share price has gone nowhere.
Why are investors showing so little interest? It could be something to do with Covid-19, and Glaxo’s absence from vaccine research. In the pharmaceuticals sector, the world did focus rather a lot on those developing vaccines, and maybe the rest just got forgotten. While GSK shares have floundered over the past two years, AstraZeneca, for example, has seen its stock climb by more than 30%.
I also wonder whether investors are seeing the planned split as an admission that the company’s focus on rebuilding its drug development pipeline hasn’t been enough. That effort has been going on for a few more years than many of us expected. For sure, I’d thought Glaxo would be back to getting its dividend growing long before now.
We’re still waiting
But here we are in 2021, and we’re still stuck on the firm’s perennial 80p dividend. And stuck with an underperforming GSK share price. Oh, and Glaxo intends to rebase its dividend at 45p from 2023 anyway, as part of its restructuring. My colleague from The Motley Fool, Ollie Henry, has covered the upcoming split in more detail. But there’s one key aspect that keeps me from buying GlaxoSmithKline stock today.
I like the pharmaceuticals business as a long-term investment. And I would definitely have New GSK on my list of top candidates in the sector. But the spun-off Consumer Healthcare business with its painkillers, toothpastes and the rest? I’m not so sure, especially if it ends up shouldering the bulk of GSK’s debt, as appears to be the plan.
I expect the Consumer Healthcare thing will end up doing ploddingly well, paying maybe a couple of percent in dividends per year. And it’s the kind of thing I might go for if I could see the full structure and finances of the company. But I would definitely not take the risks that go with the current unknowns for a stake in something so uninspiring.
New GSK share price
There are risks with New GSK and its pure drug development model too. After all, the disappointments of that pipeline rebuild will surely put off a lot of investors. And there’s no guarantee that Glaxo will create blockbuster drugs as of old. But I could still see myself investing in New GSK with a modest-but-dependable portfolio of products.
I’ll need to see its financial structure, though, and get a feel for the value of the New GSK share price before I’d hand over any of my investment cash. To sum up, I’m cautiously optimistic, but I’m going to wait. I’ve waited this long, so a while more should be fine.