Haleon – Strong Start, But Pfizer To Exit

Published on

Haleon (NYSE:HLN), the consumer health care group spun out of GSK (NYSE:GSK) last year has reported that Q1 revenues rose by 13.7%, of which 9.9% was organic. This helped to lift adjusted pre-tax profits by 9.5% to £691m, just ahead of consensus, on margins of 23.1%. The results were closely in line with guidance given at the group’s AGM a few weeks ago.

CEO Brian McNamara said the “new year has started well, and I am particularly pleased that we have delivered a healthy balance of positive volume mix and price”. The group remain confident in delivering full year performance toward the upper end of a 4-6% organic revenue growth range.

Haleon’s Earnings

“There’s a lot of detail in the statement, none of it that surprising. All categories and markets grew, with the exception of Vitamins, Minerals and Supplements (VMS) where Haleon’s Emergen-C brand was up against a tough comparator.

If you thought you’d had some really bad colds and flus since lockdown ended, you did; Respiratory Health revenues were up 33% organically. That’s a great result but likely to be a tough comp for the division this time next year. All of this is by the by though.

The market’s focus today is on the Financial Times, which last night ran an article on Pfizer/Haleon. Pfizer, of course, swapped their own consumer healthcare assets into Haleon in return for a 32% stake in the company.

Dave Denton, Pfizer’s Finance Director tells the FT that they are going to start selling this down in the next few months. It would be a slow process, aiming not to depress the Haleon price, but that’s still a lot of stock for the market to absorb. Shakespeare will come to mind for many “if it were done when ‘tis done, then ‘twere well it were done quickly”.

These stock “overhangs” can depress share prices in the short term, but it seems unlikely anyone will not buy a pack of Advil or Tums because Pfizer (NYSE:PFE) are thinking of selling a non-core investment. Haleon is performing strongly, with a great portfolio of brands.

There could be a chance to pick it up at a discount if Pfizer decides it has a more pressing need for the £10bn or so that the stake is currently valued at. Either way, the business is still valued well below the £50bn that Unilever tried to pick it up for prior to the spin-off from GSK.

The news today has sent the stock lower, some 3% or so in early trade, which looks to be more of a reaction to the news from Pfizer last night, than the news from Haleon this morning”.

Article by Steve Clayton, Head of Equity Funds at Hargreaves Lansdown