GSK's 2022 results revealed that sales grew 13% to £29.3bn, excluding the effects of currency movements. The growth was driven by strong performances in speciality medicines which were up 29%, and also vaccines which saw revenue grow by 11%.
Underlying operating profit was up 14% to £8.2bn, at a margin of 27.8%, which was 0.3 percentage points ahead of last year. The negative margin impact of lower margin COVID-19 sales was more than offset by several factors including the strong top line performance, a change in products mix, and higher royalty income.
Free cash flow from continuing operations, which does not include a contribution from the demerged consumer healthcare division Haleon, was broadly flat at £3.3bn. Year end net debt came in at £17.2bn down from £19.8bn.
GSK declared a fourth quarter dividend of 13.75p.
Looking ahead sales are expected to increase by 6% to 8% in 2023. Underlying operating profit is expected to grow between 10% to 12%. Guidance for total 2023 dividends of 56.5p remains unchanged.
The shares were broadly unmoved in early trading.
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Our View
We were impressed by GSK's first full-year results since the demerger of its Consumer Health division, Haleon. 2023 guidance suggests performance is comfortably within its medium-term targets of 5 to 10% annual growth in sales and underlying operating profits.
Strength in Specialty Medicines, which are for hard-to-treat conditions and therefore command a premium, underpin this goal. The group aims to grow its portfolio with new treatments rather than tweaking their usage, as it has done in the past. But the drug approval process is complicated, with many treatments never seeing the light of day.
Cancer treatment is one key area for growth, with several late-stage treatments in the pipeline. One example is momelotinib via the Sierra Oncology acquisition, with an authorisation decision by the US FDA due in June 2023. But the recent withdrawal of Blenrep in the US is likely to leave a gap to fill, as this previously accounted for around 20% of all oncology sales in 2022.
The group also has a strong presence in HIV treatments which make up nearly 20% of total revenues. Its newer HIV treatments are key part of GSK's future, as generic competitors eat away at pricing power for some of the group's legacy treatments. Over 2022, it was particularly encouraging to see 67% growth in its next generation products.
Vaccines are another important growth driver. The Shingrix vaccine for Shingles achieved sales of £3bn in 2022, and further growth is expected as it launches into new territories. The respiratory syncytial virus (RSV) vaccine is certainly one to watch, but there is growing competition to be first to market. GSK believes its vaccine could eventually add $4bn annually to revenues.
We're encouraged by GSK's improving debt position, and analyst forecasts suggest it'll be just 1.3x cash profits by the year end - a level that we feel comfortable with. Forecasted dividend pay outs are about two times covered by free cash flow according to consensus estimates. However, no dividends can ever be guaranteed.
Compared to forecast earnings, the valuation is below the long-term average, and significantly below many of its peers. With the shadow Zantac litigation diminishing, a single digit earnings multiple coupled with a 4% yield, make this an interesting time to consider adding the shares as part of a diverse portfolio.
To further close the rating gap will require strong execution of GSK's growth strategy and clinical pipeline. New drug approvals are never a given, and even established therapies can fall foul of the regulators, or be unseated by new entrants.
GSK key facts
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