Heavyweight Wall Street bank Morgan Stanley has provided little encouragement to GlaxoSmithKline PLC (LON:GSK) following a long-awaited strategy review designed to assuage unrest among investors unhappy with the drugs giant’s mediocre performance.
Key among the initiatives designed to address the criticisms from the side-lines, including those of activist shareholder Elliott Management, were the spin-off of the consumer healthcare division and the setting of some ambitious growth targets for the rump pharma and vaccines business.
Morgan Stanley said the demerger proposition should be “shareholder-friendly”, though there is a risk of a stock overhang.
Overhangs occur when the market thinks a big holder of shares might be a potential seller. It can lead to weeks, months and even years of stock market underperformance.
The current owners of the consumer healthcare business are GSK and American drug major Pfizer, which between them are hanging onto around 46% of the stock after 2022’s spin-out.
Longer-term, however, both are seen as potential sellers, creating the aforementioned overhang scenario.
On the GSK’s financial guidance out to 2026 provided by chief executive Emma Walmsley last month, Morgan Stanley said it looked “ambitious, but achievable”.
“However, the longer-term targets and unadjusted peak sales per product remain a show-me story,” it added.
It seems there was little in the presentation to alter the bank’s view of stock in Britain’s second-largest drugs group, which it rates ‘equal-weight'. It nudged up marginally its price to 1,590p a share from 1,550p.