GSK plc (GSK) ORD GBP0.3125

GSK's full-year revenue grew by 5% to £30.3bn, ignoring the effects of currency movements. Growth was restrained by declining sales of COVID-19 medicines. Sales across the rest of the business grew by 14% to £30.1bn, including a £1.2bn contribution from the newly launched Arexvy vaccine.

Underlying operating profit increased by 12% to £8.8bn, benefitting from higher margin non-COVID sales and a growing contribution from royalty income.

Free cash flow of £3.4bn was broadly unchanged from last year. Net debt decreased by £2.2bn to £15.0bn, helped by asset sales including part of GSK's stake in Haleon.

A final dividend of 16p per share was declared, making a total of 58p for the year. GSK expects this to grow to 60p in 2024.

2024 guidance points to revenue growth of 5-7%, and 7-10% for underlying operating profit. Medium-term revenue growth expectations have been upgraded from over 5% per annum to over 7%.

The shares fell 1.0% following the announcement.

Our view

Following the demerger of its consumer health division Haleon, GSK is now a pureplay pharmaceutical developer. We're impressed with delivery of the strategy over its first full year as a standalone entity. That's allowed two earnings upgrades over 2023, as well as improved guidance further ahead.

The financial progress is underpinned by excellence in research & development that spawned four major product approvals last year. There's potential for more significant clinical milestones in 2024. However, there can be no guarantee of continued success. Falling sales of COVID-19 medicines have held back growth but now that they are no longer material, comparatives should become less demanding.

Vaccines are proving to be a key growth driver. Further growth is expected for Shingrix for the prevention of shingles as it targets higher patient acceptance and new markets. The recently approved respiratory syncytial virus (RSV) vaccine, Arexvy, has made a good start following commercial launch and there's more to go for, but it faces some tough competition.

The group also has a strong presence in HIV treatments which make up about 20% of total revenues. Its newer HIV treatments are a key part of GSK's future, as generic competitors eat away at pricing power for some of the group's legacy treatments. Over 2023, it was encouraging to see a growing contribution from the Group's "Innovation" therapies, with two drug and long-acting regimens which now make over 50% of total HIV sales. Looking ahead, the preventative treatment Apretude could fuel further growth. It's already authorised in some territories and importantly the EU has been recently added to that list.

Cancer treatment, although relatively small in terms of current sales, is one key area for future development, with several late-stage programs in the pipeline.

Net debt has been coming down and currently sits at under 1.5x forecast cash profits, which we don't see as a major concern.

The strong financial position supports a prospective dividend yield of 4.0% but remember, no future pay outs to shareholders can be assured.

GSK's valuation is below the long-term average, and significantly less demanding than many of its peers. This may be in part due to remaining question marks over cancer links to heartburn drug Zantac. Management is working hard to draw a line in the sand, but whilst significant court hearings are still pending, it's likely to remain a key driver of sentiment.

Once more clarity emerges on the scale of any outstanding liability, strong execution of the growth strategy and clinical pipeline are likely to be the key focus for shareholders. So far so good, but remember, the drug approval process is long and expensive, with many treatments never seeing the light of day.

Environmental, social and governance (ESG) risk

The pharmaceuticals sector is relatively high-risk in terms of ESG. Product governance, particularly with safety and marketing, and affordable access to treatment are the key risk drivers. Labour relations, business ethics and bribery and corruption are also contributors to ESG risk.

According to Sustainalytics, GSK's overall management of material ESG issues is strong. There's an independent, board-level, corporate responsibility committee focused on ESG performance and framework and 10% of executive pay is tied to ESG metrics. It's ranked first on both the Access to Medicine Index and Access to Vaccines Index thanks to industry-leading efforts to ensure medicines and vaccines are provided to patients in need. Management practices concerning the transparency of clinical trials are strong, and it's committed to international standards. But despite a strong product safety programme, GSK lacks external quality management certification at its manufacturing sites.

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.

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