The GlaxoSmithKline (LSE: GSK) share price has been climbing since early 2021, and it’s up 30% over the past 12 months. But the share’s barely moved when the market opened Wednesday, after first-quarter results.
During the Covid-19 pandemic, I wonder if investors forgot about all the other things that can go wrong with humans? The focus did shift to coronavirus vaccines, test kits and the like. I think the GSK share price reflects that, having gained only 13% over the past five years. AstraZeneca, which famously has a vaccine named after it, is up 120%.
Strong sales growth
Glaxo‘s Q1 figures show sales growth up nicely across all divisions. Biopharma development (worth £7.1bn) saw a 40% gain. Excluding the Covid-19 effect, we see a more modest gain of 15%. Within the division, speciality medicines (worth £3.1bn) gained 97%, HIV is up 14%, and oncology up 15%. Vaccine sales (£1.7bn) grew by 36%.
Even general medicines sales (valued at £2.3bn) saw a 3% rise, with consumer healthcare product sales (£2.6bn) up 14%.
The consumer healthcare division is set to be demerged and listed as Haleon in July, which I think is a sensible move. Pharmaceuticals R&D and consumer product sales really are two different businesses. I do think Haleon might turn out to be a good investment in its own right.
But it does make it tricky to put a valuation on the current GSK share price, and on what will become of Haleon.
Overall results
Overall, the first quarter resulted in a 32% increase in sales, to £9.8bn. Adjusted EPS got a 43% boost, and the company announced a 14p dividend for the quarter.
Chief executive Emma Walmsley said: “Our results reflect further good momentum across specialty medicines and vaccines, including the return to strong sales growth for Shingrix and continuing pipeline progress.”
The board’s guidance for the full year for “new” GSK (after the demerger) includes a 5-7% increase in sales at constant exchange rates, with adjust operating profit growth of 12-14% compared to 2021.
GSK share price value
On the valuation front, we’re looking at a trailing P/E of 15.5, based on Tuesday’s closing GSK share price. Should EPS grow by the same proportion as the company’s 2022 profit guidance, the prospective P/E would drop to under 14.
I do want to see how the Glaxo dividend progresses through the year. After remaining steady at 80p per share for a few years, it yielded 5% for 2021.
It was covered 1.4 times by earnings, which I see as a bit weak. This is a company investing a lot of cash in R&D, so I’d like to see stronger cover. Hopefully, that will come with what Walmsley described as “a new period of sustained growth.”
Buy or sell?
Would I buy? The main risk I see is the uncertainty surrounding the demerger, and the difficulties it puts on valuing the two entities separately. I suspect we might see ongoing GSK share price weakness until more clarity emerges.
But GlaxoSmithkline is a long-term buy for me, and it’s on my shortlist.