It’s almost been a year since Haleon (LSE:HLN) shares were spun out from GSK. And while we’re still in the early days, the consumer healthcare company seems to be making solid progress. So let’s take a closer look at what’s been going on since the stock went public.
Off to a good start
Last month, Haleon announced its first-quarter trading results. Despite what the slight dip in valuation would suggest, both sales and profits were up by double-digits.
Total revenue grew by a solid 13.7%, with its Respiratory Health division leading the charge delivering 33% organic growth. Its Vitamins, Minerals and Supplements (VMS) segment sadly shrank by 3.7% year-on-year. However, a closer inspection of the underlying cause reveals some tough comparisons.
In 2022, VMS enjoyed some notable tailwinds from Covid-19 as demand for its Emergen-C tablets shot up in North America. With the pandemic no longer disrupting the world, Emergen-C sales have since normalised.
Over on the profit side of the equation, operating income is up by a chunky 34.5% reaching £627m. However, it’s important to note this boost largely stems from eliminating administrative expenses related to the demerger from GSK. Ignoring these effects, underlying earnings were up by just 9.5%.
That’s far from terrible. But with the currency exchange rate fluctuating, the group couldn’t maintain margins resulting in adjusted operating profitability dropping by 0.9% to 23.1%.
Nevertheless, management remains confident of hitting the higher end of its previously issued 4-6% organic revenue growth guidance, as well as staying on track with its projected earnings. So how have Haleon shares reacted to all this?
Haleon share price performance
While the financials appear to be moving in the right direction, there’s still a lot of work to be done. And it seems other investors share this opinion when looking at how the stock has performed since going public last year.
Haleon shares are up a not-so-grand total of just 2%. That’s nearly half of what the FTSE 100 has delivered before considering dividends.
At an opening price of 330p in July 2022, investing £1,000 into the stock would have fetched approximately 303 shares. Combining the 2.4p dividend per share paid earlier this year with the 2% price gain, the investment would currently be worth around £1,027.27.
Those are hardly the most exciting returns out there. But after a year of independence, the management team has had some time to demonstrate its skill. And while it has yet to be reflected through investment gains, the business seems to be on track.
Having said that, I’m still on the sidelines. Several question marks remain unanswered, the biggest of which is the ongoing litigation surrounding Zantac. Allegations have been made that the drug causes cancer, and while out-of-court settlements are being made, there remains the risk of severe legal penalties. And if Haleon becomes exposed to these penalties, it could easily undo the progress made so far..
Therefore, I’m not tempted to add any Haleon shares to my portfolio today. But I will be keeping a close eye on how the situation develops.
