Hedge funds are increasingly attracted to 'New GSK' as it spins-off its Consumer Healthcare business into Haleon PLC.
This and the "markedly improved" sentiment towards the FTSE 100 group, were some of the main takeaways for the pharmaceutical team at Jefferies in discussions with its institutional clients following its recent note outlining why the shares offer "compelling value" ahead of the 18 July spin-off.
READ: What investors need to know as GSK and Pfizer spin off Haleon
"We sense a significant swing in tone towards a more positive stance on GSK versus discussions last year, with near half of investors favourably inclined, skewed to hedge funds versus long-only, in both US and UK, with limited risk/event fund participation," a note from analyst Peter Welford said on Thursday.
Those with a negative view are cautious about long-term forecasts "given the challenge of offsetting patent expiries and a pipeline that is still somewhat work-in-progress".
With Sanofi (NYSE:SNY) seen as the closest peer of GSK PLC (LSE:GSK, NYSE:GSK), the UK company's growth profile is "slightly superior, in our view", with valuations seen as roughly similar but "we argue both are meaningfully undervalued".
Four potential second-half events to watch for GSK are detailed Phase III data for older adult RSV vaccine in October, plus results from key competitor Pfizer; a potential sales uptick for long-acting injectable HIV drugs Cabenuva and Apretude as switch market rebounds and in-office visits normalise post-pandemic; the readout from the Phase III otilimab trials in rheumatoid arthritis for which consensus expectations are low; and a possible FDA Advisory Committee decision on daprodustat for anaemia before the 1 February PDUFA decision date, with cons cautious.
Unlike most other analysts, Welford and his colleagues believe New GSK "can broadly sustain revenues" from 2027 before any bolt-on deals, "albeit with some margin pressure likely given the loss of blockbuster drug sales", with much of this growth expected to come from the vaccines franchise, seen as increasing to 40% of New GSK revenues by 2031 from 28% 2022, with long-acting injectable HIV products also seen reaching 10%.