GlaxoSmithKline quells market concerns for now but hard work yet to start
Chief executive Emma Walmsley presented her new strategy in what was seen as a ‘make it or break it’ event for her career, including new growth targets as the pharma giant spins off its consumer healthcare arm next year.
Sales are projected to reach £33bn by 2031, with a focus on infectious diseases, HIV, oncology and immunology.
The Consumer Healthcare business will spin off in 2022 as a demerger, while next year’s dividend was cut to 55p from 80p to give the FTSE 100 group a more comfortable cash position.
According to analysts at Deutsche Bank, the presentation “delivered a professional and competent impression (not always a given at these events) of a management team intent on executing on reasonable set of growth ambitions”.
The investment bank said vaccines commentary was reassuring while commentary on the drug pipeline suggested “there may be hope for some semblance of franchise sustainability” after HIV medication dolutegravir loses exclusivity in 2028.
“Key questions remain over both the ultimate potential for injectable assets in the setting and the competitive environment. Moreover, many of the forecasted pharma pipeline opportunities looked far more contentious in our view,” the analysts commented.
“The obvious question that was not addressed on the call (and we didn’t get permitted to ask) was what happens to margins beyond 2026: presumably if the £33bn 2031 target is credible some broad stability might be feasible; if plans do not go optimally however, it could feasibly look very different.”
Walmsley’s dynamism was “well received” by the City, according to analysts at interactive investor, although “at this stage the challenges outweigh the rhetoric”.
“Following a strategic reset, the hard work arguably starts here. AstraZeneca is for the moment significantly preferred in terms of the market consensus, coming in at a strong ‘buy’. Glaxo, meanwhile, remains a ‘hold’ in terms of the general view and has much ground to make up to reverse the years of what has been a tepid share price performance,” said head of markets Richard Hunter.
The stock rose 2% on Wednesday, suggesting the update was welcomed by the market, but stayed flat on Thursday at 1,407.6p.
“The response… while positive has been a little muted, although the shares are still just shy of their highs this year, suggesting that a lot of what has been announced may well be largely priced in,” said Michael Hewson, chief market analyst at CMC Markets UK.
Walmsley turned up the upbeat tone on Wednesday, as she had to convince the City that she’s the best person to lead the pharma segment once the consumer arm demerges next year. She’s one of only seven women holding the CEO role in the whole FTSE 100.
New shareholder Elliott Management, which declined to comment on Wednesday’s event, was previously reported as ringing around major investors to gauge opinion on Walmsley’s competence.
“I am a change agent, a business leader and I am very excited,” she told reporters on Wednesday when challenged on the topic, adding she is supported by “the most outstanding people possible”.
When asked whether new Elliott had any say in the new strategy, Walmsley said she wouldn’t comment on individual conversations.
It seems Walmsley has defended her position well so far, but she’s likely to remain closely watched by the City as she follows through with her plans. With the demerger happening around a year from now, it won’t be long before the market sees some results.