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Company Overview: GlaxoSmithKline PLC (NYSE: GSK) is a science-led global healthcare company, with three core businesses, namely (1) Pharmaceuticals, (2) Vaccines and (3) Consumer Healthcare. Headquartered in Brentford, UK, the company’s pipeline is primarily focused on oncology, immuno-inflammation, HIV, and respiratory therapeutic areas. Notably, the company stands second in the pharmaceutical industry for Dow Jones Sustainability Index.
GSK Details
Key Takeaways from Q2FY21 Results: During the quarter, the company’s earnings and revenues increased on a year over year basis, on the back of robust recovery across all segments. Further, the company’s new products in the Respiratory and Oncology segment and two-drug HIV regimens persisted in performing well in 2QFY1.
The below picture depicts decent momentum in GSK’s top-line.
Revenue Highlight; Analysis by Kalkine Group
Key Developments:
Balance Sheet & Liquidity Position:
Key Metrics: In 2QFY21, the net margin of the company stood at 19%, higher than the industry median figure of 17.2%. ROE for 2QFY21 stood at 9.2%, as compared to 5.5% of industry median.
Profitability Profile; Analysis by Kalkine Group
Top 10 Shareholders: The top 10 shareholders together form around 7.89% of the total shareholdings, while the top 4 constitutes the maximum holding. Dodge & Cox and Capital International Investors are holding a maximum stake in the company at 3.5% and 0.79%, respectively, as also highlighted in the chart below:
Top 10 Shareholders; Analysis by Kalkine Group
Risk Analysis:
Outlook: For FY21, GSK expects sales for the pharmaceutical segment to remain flat or expand upto low single-digit (in percentage terms). Revenues from the Consumer Healthcare segment is likely to rise by low to mid-single digits. Further, for 2HFY21, the company anticipates recovery from the sales of the vaccine segment. Despite COVID-19 led uncertainties, the company remains on track to witness decent sales growth from its lupus drug, Benlysta. This momentum is expected to continue in years to come. Also, regulatory approvals for GSK’s essential drugs from FDA is likely to bring additional revenues.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of the company has been corrected by ~1.79% in the past one year. Currently, the stock has a 52-week’s high and low level of $42.40 and $33.26, respectively. We have valued the stock using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight discount as compared to its peer average, considering its supply chain disruption risk, increased costs and expenditure, foreign currency risk, high debt burden, and strict regulatory approval, etc. For that purpose, we have considered peers such as Merck & Co Inc (NYSE: MRK), AstraZeneca PLC (NASDAQ: AZN), to name a few. Considering recovery from the sales of the vaccine segment, a rise in the top-line and bottom-line in 2QFY21, FDA approvals, and valuation, we recommend a “Buy” rating on the stock at the closing price of $40.50, down by ~0.34% as on 4 August 2021.
GSK Daily Technical Chart, Data Source: REFINITIV
Technical Indicators Defined:-
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
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