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Haleon stock price: Will slumping HLN shares ever regain heady 330 pence IPO mark again?

By Jenny McCall

14:08, 11 November 2022

A image of Sensodyne toothpaste
Sensodyne toothpaste (pictured) now falls under the portfolio of consumer goods company Haleon - Photo: Getty Images.

It’s been one of the biggest spin-offs this year, biotech giant GlaxoSmithKline (GSK) demerged from its consumer healthcare division in July and created a standalone company called Haleon (HLN). It had a market valuation of around £30.5bn ($36.4bn).

HLN reported its first earnings results this week since the demerger and the results were good. But HLN stock has been down 9% since it was listed on the London Stock Exchange (LSE) this summer and it’s depleted from its 330 pence initial public offering (IPO). 

Currently trading at 274p, Haleon stock has dropped, and its market share stands at £25bn. So, can it regain its momentum?

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GlaxoSmithKline (GSK) share price chart

Will GSK spin-off HLN see its share price return to its glory days?

Products included in Haleon’s portfolio are leading brands including Sensodyne, Voltaren, Panadol and Centrum. The group reported strong growth in their third quarter trading update and raised their guidance for the full year slightly. They now see organic revenue growth of 8.0- 8.5%% for the full year and for margins to be slightly improved, despite some additional currency impacts.

Steve Clayton, fund manager at HL Select at Hargreaves Lansdown wrote on a note: “This is a good update from Haleon. Guidance is up and the gains are coming across the portfolio with a mixture of price and volumes driving the overall result. But no news on the Zantac litigation front, which continues to overhang both GSK and Haleon alike.

“We don’t expect to see news on that front before some key test cases have gone through the courts next year. In the meantime, though, Haleon is trading strongly and looks to be making good progress in paying down the demerger debts tha GSK left it with.”

So, can HLN stock price return to its glory days?

The Macquarie Group research said that a new entity should have a six month grace period before the stock price can stabilise, which might explain why the Haleon share price have been descending

HLN was loaded with over £10bn in debt, following the demerger, this consists mostly of long-term borrowings, but it does have strong cash generation and revenue is forecast to grow 5.4% p.a on average over the next three years, compared to a 3.9% forecast for the personal products industry in the UK.

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In its interim trading statement, released in September, HLN said that two-thirds of its businesses gained or kept market share through 'increased household penetration, winning new consumers with exciting innovations and activation, as well as channel expansion and geographic expansion.' It also reiterated its annual organic revenue growth guidance of 4-6%. 

“We like Haleon for the strength of its brand portfolio and the defensive, cash generative nature of the business,” Clayton said.

Clayton does however highlight the Zantac issue and said that investors will need clarity on this before the stock can display its true potential.

Back in August, shares in GlaxoSmithKline (GSK), Haleon (HLN), and pharma group Sanofi (SNY), all fell after concerns grew around legal proceedings relating to GSK’s former heartburn drug Zantac.

All three companies lost a combined $31bn (£23bn) in market cap, as investors grew concerned over the litigation. Reports have said that the companies are among the defendants in several lawsuits claiming that Zantac contains a cancer-causing substance called NDMA.

Sanofi (SNY) share price chart

Will Zantac litigation concern investors?

Danni Hewson, financial analyst at AJ Bell, wrote in a note: “Fears of a multi-billion-dollar lawsuit for the companies involved with recalled heartburn drug Zantac have wiped billions off the value of GSK, Haleon (HLN) and Sanofi (SNY).  Investors fear they will have to shell out big bucks if found guilty of failing to properly warn users about health risks, with allegations that Zantac causes cancer.”

With that said, analysts are optimistic that HLN will pull through.

“We think its case is strong and once proven, the re-rating potential for the business is clear,” Clayton concluded.

Markets in this article

GSKl
GSK
15.085 USD
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SAN
Sanofi
92.99 USD
-0.73 -0.780%

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