GSK plc (GSK) ORD GBP0.3125

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.

GSK’s second-quarter sales rose 6% to £8bn, when ignoring currency impacts. The growth was supported by a 15% uplift in speciality medicines and a recovery in vaccine sales.

Underlying operating profit grew 12% to £2.6bn. A favourable shift in the revenue mix more than offset higher research & development spend and product launch costs.

Free cash flow rose from £0.3bn to £1.1bn, helped by the favourable timing of payments and reduced inventory build. Net debt was £13.7bn.

Full year growth is now expected to land towards the top end of previous guidance. The range for sales growth was 3-5%, with a slightly higher range for underlying operating profit at 6-8%.

The quarterly dividend was raised by 1p to 16p. So far, £822mn has been spent on the £2bn buyback programme.

The shares were flat in early trading.

Our view

GSK’s second quarter update was strong enough for management to moderately improve its guidance for the year. Subject to a pending regulatory decision for its new asthma treatment, the target of five major new product approvals in 2025 also remains in sight.

Looking ahead GSK’s clinical program supports its plans for 14 launches over the next six years, each with a peak annual sales potential of over £2bn. There are no guarantees, but we think there could be some upside to the 2031 revenue target of £40bn.

Encouragingly, vaccine sales have started to recover with the potential for higher growth rates in the second half of 2025 as comparisons are lapped. Elsewhere 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 the future, and they’re seeing some impressive growth. A strong clinical pipeline of next generation HIV therapies should further help bolster GSK’s market position.

Respiratory disease is another key therapeutic focus. Here, GSK has its sights set on improving outcomes for sufferers of COPD, the third leading cause of death worldwide. Meanwhile, Cancer treatment, although relatively small in terms of current sales, is growing rapidly. Recent approvals and launches in new markets mean there are strong growth drivers for the existing portfolio. The development pipeline looks promising.

Net debt has been coming down and currently sits at about 1.3x forecast cash profits, which we don't see as a major concern. Improving underlying cash generation helps support a prospective dividend yield of 4.8% and GSK recently launched a share buyback, but remember, no payouts to shareholders can be assured.

Investor sentiment toward the pharmaceutical industry has been damaged this year by tariff concerns and the potential for further US legislation to bring down drug pricing. We think that’s been overdone. This year’s guidance takes account of tariffs implemented so far, and the company is already scoping out changes to its supply chain to mitigate further changes to import and export charges.

We see pressure on drug pricing as a bigger risk but there’s plenty of obstacles to clear if Donald Trump’s proposals are to become law. But the continuing uncertainty means volatility could be higher than usual.

GSK's valuation is below the long-term average, and significantly less demanding than many of its peers. That reflects relatively modest forecasts and also perceptions around the group’s ability to commercialise its research efforts. The company’s working hard to put that right, but remember that the risk of failure in drug development can be very high.

Parties related to the author hold shares in GSK.

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.

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.

Previous GSK plc updates