The Haleon (LSE:HLN) share price is currently 305p. That’s down from its listing price at 320p. So, it’s not been a great few weeks for the fast-moving consumer goods brand since its demerger with GlaxoSmithKline.
The listing — the largest in Europe for over a decade — was long-awaited. Haleon is now the world’s largest standalone consumer health business.
So, are Haleon shares set to soar, and is it right for my portfolio?
Performance
Haleon directors clearly have some faith in the business. Chairman Sir Dave Lewis spent £200,000 on shares on last week. The purchase came shortly after the consumer healthcare company upgraded full-year revenues guidance in its maiden trading update.
Meanwhile, two other non-executive directors spent £65,000 on the stock, and a person connected with the company’s chief supply officer invested £60,000.
Last week the firm posted interim revenues of £5.18bn, up 11.6% year on year. Haleon stated that it was principally driven by organic revenue growth, higher prices, and an improved volume mix. Organic revenues rose 11.6%, while prices were up 3.7% and volume mix 7.9%.
The FTSE 100-listed firm said that Panadol, Theraflu, Otrivin, Advil, and Centrum brands all had “particularly strong” showings in the first half of the year.
Upside potential
Firstly, Haleon is confident it can deliver growth in the near term, and that’s important considering the macroeconomic environment.
In the trading update, management said that it was upgrading its full-year organic revenue growth ahead of medium-term guidance range. “We continue to invest to drive sustainable growth and remain confident in delivering on our medium-term guidance,” the statement read.
Haleon certainly has some defensive qualities, namely the strength of the brands it owns. Brands with strong reputations tend to perform well even when economies go into reverse.
But more generally, the demerger was seen by many as a positive for both GSK and Haleon. In fact, after the split, Credit Suisse initiated coverage of Haleon at “outperform” with a 368p price target.
And there are several positive indicators that the share price could push higher.
Haleon’s enterprise value is around £40bn, taking into account the company’s £10bn in debt. So that’s some distance ahead of its current £28bn market cap.
It also has a forward price-to-earnings ratio of around 18 — more than the FTSE 100 average — given Barclays’s EPS forecast of 16.6p for 2022. Barclays contend that the firm will achieve revenues of around £10.7bn this year, up from £9.6bn last year. It’s a considerable jump from just £4bn in 2014.
Would I buy Haleon shares?
I’m actually holding off buying Haleon shares as I want to see more evidence that the business is moving in the right direction. Debt is an issue and I want to see that it’s at a level that doesn’t impede the firm’s growth. Haleon starts life with a net debt-to-cash-profits ratio of around four, twice that of GSK.