Shares in FTSE 100 pharmaceutical firm GlaxoSmithKline (LSE: GSK) were on the front foot again this afternoon, building on the positive momentum shown by the stock since the beginning of 2019. The reason? A solid set of Q3 numbers, released at noon. Here’s what you need to know.
“Further good progress“
Group sales over this quarter came in a touch under £9.4bn — a rise of 16%. This brings the total turnover for the first nine months to £24.9bn — 7% higher than over the same period in 2018 once currency fluctuations are considered.
Positively, all three of Glaxo’s businesses registered solid growth. While the majority of sales (£4.5bn) continue to be generated by its pharmaceuticals business — with respiratory bringing in £806m (+25%) and HIV hitting £1.3bn (+5%) — it’s the other parts of Glaxo that will be grabbing the headlines today.
Sales at its consumer healthcare and vaccines businesses soared by 30% and 20% respectively. The £2.5bn generated by the former was largely the result of the company’s recent joint venture with US giant Pfizer (a new business that will eventually become a separate listed entity). A good portion of the latter’s £2.3bn can be attributed to an 87% jump in sales of its Shingrix shingles vaccine over the period.
All told, adjusted operating profit grew 10% over the period to £2.8bn and 9% over the first nine months to £7.1bn, adding substance to CEO Emma Walmsley’s claim that the company had “made further good progress” over the quarter.
But there was more good news. Glaxo also announced today that it would be revising its guidance for the full year, with flat adjusted earnings per share now expected as a result of recent performance, increased investment and lower tax rates. This is clearly a great improvement on the prediction of -3% to -5% made back in July.
All things considered, I really can’t see anything in today’s release for current investors to complain or worry about.
But let’s not kid ourselves here: the vast majority of people holding Glaxo probably aren’t that bothered about performance over a single three-month period. They’re in it for the income its shares generate, even if the annual payout hasn’t budged for years.
And I don’t blame them, particularly as the extent to which these payouts are covered by profit is now starting to look far more healthy. Before markets opened this morning, the predicted 80p per share cash return translated to a yield of 4.6%.
What’s perhaps more surprising is that Glaxo’s shares still look reasonably priced, despite hitting heights not seen in almost 20 years and the firm boasting an encouraging pipeline with “advanced assets in Respiratory, HIV and […] Oncology“.
At 15 times earnings for the current financial year, they’re still far below the company’s 5-year average price-to-earnings (P/E) ratio of 23 and a lot cheaper than the 26 times earnings prospective buyers of FTSE 100 peer Astrazeneca are currently being asked to cough up.
The above, when combined with the defensive qualities that pharmaceuticals offer, make it a great company to own in times of trouble. It will never be completely immune to general stock market shudders but it certainly shouldn’t keep you awake at night.
With a general election now in the calendar and no telling where we might be at the beginning of 2020, Glaxo looks a strong buy to me.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.