In keeping with its tradition of releasing results in time to catch US markets opening, pharmaceuticals giant GlaxoSmithKline (LSE: GSK) revealed its latest trading update at noon today.
Given the (initial) increase in the share price this afternoon, it seems many UK investors are more than satisfied with what the Brentford-based business had to say.
Sales up
Group sales over the third quarter of its financial year hit £8.1bn — a rise of 6% at constant exchange rates (CER). This brings the drugmaker’s total turnover for the first nine months to £22.6bn — 4% higher once currency fluctuations are taken into account. At £4.2bn, the majority of this came from its Pharmaceuticals business. Sales at Consumer Healthcare and Vaccines — Glaxo’s two other businesses — both rose to £1.9bn with the latter registering growth of 17%.
Total New Respiratory product sales soared 40% to £645m over the reporting period with the company’s Relvar Ellipta inhalers and add-on treatment Nucala bringing in £500m and £145m respectively. Elsewhere, sales of HIV drugs Tivicay and Triumeq climbed 13% to £1.1bn.
Taking all this into account, adjusted operating profit grew 6% over the period to £2.52bn and 7% over the first nine months to £6.55bn. Adjusted earnings per share came in at a better-than-expected 35.5p (+14% CER)
Positively for those already holding its stock, Glaxo announced today that it would be revising its guidance for the full year “towards the upper end of previous expectations“. Thanks to bumper sales of Shingrix (likely to be £700m-£750m in the current financial year after bringing in £286m over Q3) and improved cost control, adjusted earnings per share growth of between 8%-10% at constant exchange rates is now predicted. Interestingly, this is regardless of whether a generic competitor to its blockbuster Advair — used to prevent asthma attacks by relaxing muscles in the airways — is introduced in the US.
A screaming buy?
GlaxoSmithKline’s stock was trading a little under 14 times earnings before trading commenced this morning. Compared to other companies in its industry, that’s pretty cheap. It’s certainly better valued than FTSE 100 peer Astrazeneca, which requires investors to fork out 22 times earnings to acquire its stock at the current time, although the latter does arguably have better growth prospects going forward.
The real draw for many investors, however, remains Glaxo’s bumper yield. As expected, the company revealed a 19p per share dividend for the quarter. A total payout of 80p for the financial year was also reiterated — something that hasn’t changed since 2014.
Based on its today’s share price, that leaves Glaxo yielding 5.2%. While I don’t expect significant hikes going forward, the extent to which these cash returns are likely to be covered by profits is beginning to look far healthier. I fully confess to being sceptical over the company’s ability to avoid taking a knife to its dividend over the last couple of years but, at £2.38bn, the 42% improvement in free cash flow over the year to date makes Glaxo’s income credentials a lot stronger.
It might not be a screaming buy, but today’s numbers have led me to revise my view on the company. At a time when many investors are clamouring for security as a response to ongoing trade tensions between the US and China, to interest rate rises and our forthcoming EU departure, I think purchasing slices of non-cyclical, globally diversified businesses like Glaxo could be a sound move.
