After a troubled start, Haleon (LSE: HLN) has seen its shares rip 32% higher since last September.
At £3.26 a share, this might be the last chance I have to buy into the FTSE 100 firm below its price at IPO. So is it time to buy before it’s too late?
What happened to the share price?
Big things were expected for Haleon when it was spun off from GSK (formerly GlaxoSmithKline) last July. The shares were offered at £3.30 for a £30bn valuation, which instantly placed it in the FTSE 100 index.
But even that was some way short of the £50bn that Unilever offered GSK for it a few months before the demerger.
The shares dropped from £3.30 at IPO to a low of £2.46 in September. Much of this fall was due to a lawsuit claiming GSK’s Zantac heartburn drug caused cancer.
Since then, the shares have risen 32% to £3.26 after it seemed the firm was in the clear regarding that litigation.
Consumer healthcare potential
Haleon came from the consumer healthcare side of GSK. It took over its popular products like Sensodyne toothpaste, Advil painkillers and Centrum vitamins.
It was thought splitting off this side of the business would be better for both firms.
A clear reason for that is consumer healthcare is an exciting market right now. One estimate suggests the global market of $359bn in 2022 should grow to $782bn by 2030.
A market increasing around 9% a year sounds like a good place to be. If predictions are correct, sales could double before the decade is out.
And it makes sense too. Populations are getting older and health issues linked to this are becoming more commonplace.
£10bn revenues
Haleon has already shown strong signs of growth. Revenue increased from £8.5bn in 2019 to £10.9bn in 2022, and net income from £655m to £1,060m.
And last month’s Q1 2023 statement looked good too. Revenue was up 14% and operating profit was up 34% with strong performance in all product categories. This is especially impressive considering the cost-of-living crisis we’re currently facing.
Further, Haleon could grow in lower-income countries that struggle with a deluge of counterfeit products. The Weybridge-headquartered firm already operates in over 120 markets.
High P/E ratio
Looking at the risks, a price-to-earnings ratio of around 27 looks expensive compared to other FTSE 100 companies (which have an average 14).
To me, that’s a lot of future growth already included in the price.
Equally, Haleon’s forward yield of 1.49% looks puny compared to GSK’s dividend history of consistent 4%+ yields.
Is it a buy?
I’m curious to see how Haleon fares with consumer healthcare trends that should work in its favour. But at present, its high cost doesn’t make it look like a screaming buy for me.
I think there are cheaper FTSE 100 stocks that I’d prefer to invest in.
