GSK plc (GSK) ORD GBP0.3125

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GSK reported full year sales up 7%, ignoring currency moves, to £31.4bn (£31.1bn expected). Strong growth in Speciality Medicines more than offset a decline in Vaccine sales.

Underlying operating profit rose 11% to £9.1bn, benefitting from a favourable mix of both products and regions.

Free cash flow fell from £3.4bn to £2.9bn reflecting £0.6bn of settlement payments in the Zantac case. There remains a provision of £1.5bn on the balance sheet for further similar payments. Net debt was down nearly £2bn to £13.1bn.

A final dividend of 16p brings the annual total to 61p. It’s expected to rise to 64p in 2025. A £2bn share buyback programme has also been launched.

GSK expects top line growth of 3-5% this year and an uplift in underlying operating profit of 6-8%.

The shares were up 5.6% in early trading.

Our view

GSK has met upgraded estimates for 2024 despite weakness in its vaccine portfolio. It also dangled the added sweetener of a proposed £2bn share buyback and the shares responded well on the day.

The financial progress is underpinned by excellence in research & development that’s seen 13 positive late stage clinical updates so far this year, and is expected to yield five major product approvals next year. While there can be no guarantee of continued success, recent milestones have driven an upgrade to the medium-term outlook where at least £40bn of annual sales are expected by 2031.

More immediate headwinds from vaccine sales should moderate 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 GSK's future, as generic competitors eat away at pricing power for some of the group's legacy treatments. But the group focus for HIV is shifting to long-acting innovation therapies. And it’s these that have helped capture additional market share and drive double-digit growth for the category in the first half. Apretude is another important product to watch in the space. It’s the only approved medicine in its class and real-world studies have shown it to be 99% effective at preventing HIV infections.

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 1.2x forecast cash profits, which we don't see as a major concern. Improving underlying cash generation helps support a prospective dividend yield of 4.7% and recently launched a share buyback, but remember, no payouts to shareholders can be assured.

GSK's valuation is below the long-term average, and significantly less demanding than many of its peers. Clarification over liabilities relating to legacy medicine Zantac removes a key doubt around the company’s financial position, and the company looks well placed to cover the £1.5bn provision for future dispute settlements.

Looking ahead, strong execution of the growth strategy and clinical pipeline is likely to be the key focus for shareholders moving forward. 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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