Haleon’s share price has gained 6% over the last month, but remains below July’s 330p IPO price. Spun out from GSK, Haleon began trading in July in what was the biggest European listing in over 10 years. The consumer healthcare giant is considered a long-term value play, but could headwinds affect the share price as we head into 2023?
Haleon’s [HLN] share price has gained just shy of 6% over the last month, but it still remains well below July’s 330p IPO price. Spun out from GSK [GSK], Haleon began trading on the London and New York stock exchanges in July, in what was the biggest European listing in over 10 years.
The consumer healthcare giant and blue-chip stock, whose multinational brands include Sensodyne toothpaste, Panadol painkillers and Advil pain relief, has a powerful competitive advantage in the sense that it owns nine well-known international brands, and therefore is often thought of as a long-term value play.
But while the company is considered to be a safe business model, there are headwinds which could affect the share price as we head into 2023. Given this, should investors looking to invest in Haleon stock at its current valuation, or will there be a more favourable entry point in the future?
How has Haleon’s share price performed since the summer IPO?
Haleon stock is up 5.87% over the last month into Friday 5 December’s close at 291.45p, but still remains 11.58% away from the 18 July IPO launch level at 330.00p. The shares have however been on an overall uptrend since reaching a low of 241.17p on 5 September, climbing 20.85% since then into last week’s close.
Strong Q3 points to growth potential
Last month’s third-quarter results saw Haleon announce a healthy 16.1% year-on-year jump in revenue, albeit around half that was down to favourable exchange rates. Organic growth came in at 8.1% above 2021 levels, and 10.3% over the first nine months. The company also upped guidance for its full-year revenue and operating margin.
Head of equity research at Quilter Cheviot, Chris Beckett, recognised Haleon’s growth potential back at July’s stock market launch, saying: “This is an attractive area to be in … 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.”
Rival Unilever [ULVR] certainly recognised the company’s potential, given GSK rejected several of its takeover bids for the company earlier this year, including one worth £50bn (a 40% premium on today’s share price level). At the time, GSK said the offer undervalued the business and its growth prospects. With Haleon controlling only about 6% of a consumer healthcare sector worth about $180bn, there’s clearly plenty of untapped potential.
Headwinds could dampen Haleon share price prospects
There are several issues which could hinder Haleon’s valuation over the short to medium term. One such issue, highlighted by analysts in July, is the company’s debt level of around £10bn, following its demerger from GSK. While the level of debt remains elevated today, “the financials are absolutely under control and the company is committed to significantly reducing its debt in the coming quarters”, according to Seeking Alpha.
As the current major shareholders, there’s also uncertainty about when GSK and Pfizer [PFE] will start selling their remaining shareholdings, after the initial lock-up period expired last month. The companies currently own around 14% and 32% respectively, but could begin to sell some of their shares, which, suggests Seeking Alpha, will “naturally put pressure on Haleon's stock price”.
There’s another possible cloud on the horizon: the drug Zantac, which was withdrawn from the market in 2020 due to its potential links to cancer. There are now over 2,000 US lawsuits pending. The outcome is uncertain however, and Haleon says it can’t be held liable because it was a joint venture between Pfizer and GSK, and the two companies had already sold the rights to market Zantac. However, concerns that the company could be held liable are holding back Haleon’s share price, according to RBC Capital Markets analyst, James Edwardes Jones.
What are analysts predicting for Haleon stock’s outlook?
Seeking Alpha remains bullish on the stock, saying, “the aforementioned risks do not appear to be material from a long-term perspective, making the stock a buy at the current price”.
Haleon has a median 12-month price target of 310p among 14 analysts polled by the Financial Times. The high estimate comes in at 410p, with a low estimate at 250p. The median estimate represents a modest potential upside of 6.36% versus the most recent close of 291.45p on 2 December. In all, 16 analysts are generally positive on Haleon’s share price prospects, but point to an overall ‘hold’, with eight recommendations. The stock also has two ‘buy’ and five ‘outperform’ rating, along with a single ‘underperform’ recommendation.
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