As Haleon, GlaxoSmithKline’s consumer healthcare division, lists on the London Stock Exchange, Chris Beckett, head of equity research at Quilter Cheviot, looks at what it means for the company and investors.
Monday 18 July saw the introduction of a new UK listed consumer stock as Haleon spins out of GlaxoSmithKline and becomes a standalone business. The stock listed with a share price of 330p, valuing the company at £30.9 billion.
This is an important moment for the UK stock market as it has been dominated for a number of years by oil, mining and financial companies. But we will now see a new, large, consumer focused business on the UK market, giving investors an alternative to the slim pickings already available in this sector – predominantly Diageo, Unilever, BAT and Reckitt Benckiser.
Sentiment has been positive for Haleon and it should trade at a premium compared to its rival Reckitt. The business has strong brands and market positions in oral health, pain relief, digestive health, vitamins and respiratory health.
By geography the business has strong positions in the USA, Asia Pacific and several Western Europe and other energising markets, indicating how it can thrive in this industry. Under GSK’s ownership the business has been focused on several ‘power brands’ including Sensodyne toothpaste, Centrum multivitamins and Panadol/Advil in pain relief. Having these household brands gives it a good starting position.
Fundamentally, this is an attractive area to be in just now. Growth prospects are good and Haleon will have strong pricing power and in a relatively unconsolidated market. This presents opportunity for organic and acquisition led growth.
There are some concerns over the amount of debt the company is taking on as part of the demerger with GSK. This high gearing will impact upon the dividend in the short-term, but hopefully over time these concerns ease. There is also uncertainty about what GSK and Pfizer will do with their remaining shareholdings of the business. This is another thing for investors to keep an eye on.
However, the world has come a long way since the failed Unilever takeover. With its defensive characteristics and the current market volatility showing no sign of abating, Haleon will not necessarily be a bad place to be on day one of listing.
