At 316p, the Haleon (LSE: HLN) share price has recovered from its dip this year.
The business started when GlaxoSmithKline (now GSK) and Pfizer combined their consumer healthcare operations in 2019. And it demerged from being under GSK’s wing in July with its own listing on the stock market. But the shares got off to an inauspicious start.
Haleon’s first ever share price was 330p. And that gave the company a market capitalisation of around £30.5bn with a position near the top of the FTSE 100 index. But by September, the stock had dropped to about 246p. However, today’s share price near 317p means it’s mostly recovered.
A defensive business
The business is the kind of defensive, cash-generating operation that I love to welcome into my portfolio. The brands have strength and are well-known. For example, the stable includes names such as Sensodyne, Aquafresh, Nicorette, Otrivin, Contac, Nexium, Voltaren, Panadol and Centrum.
Such products have the potential to keep selling in good times and bad. So Haleon looks less vulnerable to the cyclical effects of the economy than many businesses. And the financial record from 2019 shows robust revenue, earnings and operating cash flow.
Furthermore, it operates a mature business trading all over the world. And November’s third-quarter trading update was upbeat. In the three months leading up to 30 September, revenue grew by just over 16% year on year. And adjusted operating profit rose by almost 15%.
It seems the general economic and geopolitical challenges in the world haven’t slowed the company’s progress. It said the business thrived in the period because of positive factors relating to the volume and mix of products sold. But on top of that, efficiencies and price adjustments offset the effects of inflation to preserve profits.
Upgraded guidance
The directors upgraded their guidance for the full year and now expect organic revenue to grow by around 8%-8.5%. It seems that the Haleon business is firing on all cylinders.
However, because of the maturity of the underlying business, I’m not expecting growth to shoot the lights out. Instead, I see Haleon as a potential stalwart of the FTSE 100 capable of delivering steady, but modest, long-term growth in all the right financial measures.
Therefore, I’d want to see incremental increases in revenue, earnings and cash flow. And I’d want the company to keep reducing its debt as it progresses. Such outcomes can support a progressive shareholder dividend policy.
After all, if it’s not all about growth with a stock investment, it’s got to be all about income. But here comes the bend at the end of my assessment of the company: the dividend doesn’t cut the mustard.
For 2023, City analysts expect the yield to be a paltry 2%. So, for the time being, I’m watching the company’s progress from the sidelines.
