Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Haleon - price rises drive first quarter growth

Haleon's first quarter revenue totalled £3.0bn, reflecting organic growth of 9.9%.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Haleon's first quarter revenue totalled £3.0bn, reflecting organic growth of 9.9%. This was largely driven by price rises, but volumes also ticked up too.

Respiratory health was the best performing product category, helped by a continued strong cold and flu season. There was growth in all other categories bar vitamin and mineral supplements which faced strong comparatives due to the Omicron wave in early 2022.

Adjusted operating profit was up 3.3% to £691m, ignoring the impact of exchange rates. Growth was held back by higher costs not related to additional sales.

Recently upgraded revenue guidance remains unchanged, with full year organic growth expected to be close to 6%.

The shares fell 3.8% following the announcement.

View the latest Haleon share price and how to deal

Our view

GSK's former consumer healthcare division, Haleon, has seen last year's strong performance continue into 2023.

There are a few things that are benefitting the top line. Haleon's stable of consumer brands includes a number of household names such as Sensodyne toothpaste, Otrivin nasal spray, Panadol painkillers and Centrum multi-vitamins. Many of its products have been flying off the shelves because of high levels of cold and flu. How long this can go on for is not within the company's control.

Those powerful brands also mean Haleon has been able to increase prices without volumes falling. Customers tend to happily stomach a higher price when it comes to medicine they trust.

Ultimately, we can't knock progress. But we wonder how much longer this trend can continue. As consumers continue to grapple with difficult conditions, volumes could start to dip if price hikes are taken too far. There's increased risk of customers swapping to cheaper generic alternatives.

Reading between the lines, Haleon is finding it more difficult to improve margins than previously thought, which is perhaps no surprise given the inflationary environment. Continued investment in marketing is in our view essential to maintain Haleon's leading brand positions, which may mean there's limited scope to cut costs.

A key focus for investors is Haleon's ability to pay down its hefty net debt pile of close to £10bn. Haleon is targeting net debt/underlying cash profit to be below 3x by the end of 2024, an improvement over the earlier target of 4x. That's still worse than many of its peers. A deterioration in trading could derail this plan, and for now debt repayments are likely to keep cash returns to shareholders subdued.

We believe the current valuation already fairly reflects Haleon's strong brand power. With a relatively low yield, only modest growth prospects and a high-teens earnings multiple it's difficult to currently see what the obvious drivers for a re-rating might be. Further pressure on the valuation is possible if the company's major shareholders Pfizer (32.0%) and GSK (12.9%) start to reduce their holdings. Recent comments by Pfizer's Chief Financial Officer suggest that in the case of the former, this is increasingly likely.

Haleon key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 3rd May 2023