GlaxoSmithKline PLC (LON:GSK) has “deep value” and the negative value the market is implying for the drug pipeline is totally unwarranted, reckons City broker Berenberg.
An investor event to be hosted by pharma giant next week is highly anticipated, with boss Emma Walmsley under pressure to deliver improvement as she and the board outline the growth outlook for the next five to ten years, confirm the extent of the proposed 2022 dividend cut and confirm the route and timing of the exit of the Consumer business.
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“Clear communication from management will be critical in order to convince many sceptical yet intrigued investors that now is the time to buy,” said Berenberg as it reiterated its ‘buy’ stance on the stock.
The broker is forecasting annual growth of 5% for sales and 10% for adjusted operating profit over the next five years, compared to a City consensus at nearer 5% and 8% respectively.
Investors are wondering whether the FTSE 100 group will manage to fill the £3bn sales hole after the loss of exclusivity over HIV medication dolutegravir in 2028, which the Berenberg analysts calculate will also cause lost profits of £1.8bn.
If the pipeline is to close the gap and retain 4% sales growth per annum, the team will have to deliver at least two 'megabuster' assets to market by the middle of the decade.
And the analysts noted that there are at least four Phase 2/3 pipeline “gold star assets” that have the potential to fit the bill.
Seeing positives in the dividend cut, they added that this could facilitate more business development and leave the Biopharma business with a 40% payout ratio and a 3% yield.
“The remaining unallocated cash accumulates to £2bn by 2023 which could enable management to supplement the internal pipeline with one to two external assets within the next two years,” analysts said, such as the US$2bn deal with Iteos Therapeutics this week.
Shares were flat at 1,413.97p on Tuesday late morning.