Haleon PLC (LSE:HLN, NYSE:HLN) will on Monday be the largest company listing in London for over a decade as it is spun out of a partnership between GSK and Pfizer.
It will not be issuing new shares as part of its flotation, but as of Friday afternoon, existing investors in GSK will get one share in the new company for each current one they own.
This will mean GSK shareholders will own around 54.5% of the company on Monday, with GSK hanging onto a stake of around 13.5% and Pfizer the remaining 32%.
Haleon's shares will be priced on Sunday depending on the GSK share price at close of play on Friday.
What does Haleon own and how big will it be?
Based on assets previously owned by GSK, Pfizer and bought from Novartis, Haleon is a dedicated consumer health company with its revenues divided between oral health, including toothpaste brands such as Sensodyne; digestive health and pain relief, where brands include Panadol, Advil, Volatol/Voltaren and Tums; and other sectors such as respiratory health with Theraflu, Otrivin, Centrum, and Chapstick.
READ: What 'New GSK' will look like after the Haleon spin-off
It is anticipated to have a debut enterprise valuation of between £40bn to £45bn, including debt, with an equity value of close to £33bn, which will place safely it in the top quarter of the FTSE 100.
The board will be led by Brian McNamara as chief executive, having been CEO of the division since 2016 and spent the previous two-and-a-half decades focused on consumer health at Novartis and Procter & Gamble (NYSE:PG), and he will be further guided by former Tesco boss Sir Dave Lewis as chair.
(The company's name, in case you’re wondering, is pronounced ‘Hay-lee-on’ and is “inspired by the merging of the words ‘hale', which is an old English word that means 'in good health' and ‘leon’, which is associated with the word 'strength'” as is Spanish for 'lion'.)
Whatever its name means, Haleon will be the second largest consumer health company in the world on the basis of sales and the only listed pure-play in the space of meaningful scale (until Johnson & Johnson (NYSE:JNJ) lists its consumer health arm, which has been slated for 2023).
What are its growth prospects?
As the world's only major pure-play listed consumer health company, Credit Suisse said it will benefit from being in a sector enjoying structural growth trends, while enjoying a market share twice that of its nearest competitor, a strong presence in various key regions and categories, a premium offering, higher margins than the consumer staples sector and “limited impact from inflation” as direct inputs are less than 10% of sales.
Haleon has guided to organic sales growth of 4-6% his year, which should put it between £10bn and £1bn, which analysts at Barclays forecast will equate to just over £2bn of underlying profit and 16.63p earnings per share.
Analysts at Jefferies suggested Haleon’s sales guidance has “proved controversial”, Jefferies said, predicting the company “should bat in the middle of the top line guide” this year to generate £10.4bn before things prove “more challenging beyond that”, with growth falling to 4.3%.
“The bull case from here is that capable management, backed by healthy A&P [advertising & promotion] and liberated from what have been years of cost-led integration, should be able to drive top line harder.”
Profit margins
“It will have to be nimble though due to the cost inflation, which has whipped up across the consumer goods industry," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown
“The idea is that a more focused consumer business will help boost sales and that could push margins higher as once research and development production costs are covered.
“The aim is for a larger proportion of each additional item sold to drop through to profit and price hikes to feed through from last year, which should help.”
A more cautious take from Jefferies is that Haleon “seems to be losing share in its core market of the US” and it will be able to extract only “moderate” profit margin growth in future as it invests in A&P and faces “other cost frictions”
Credit Suisse is even less optimistic about sales, forecasting 4.2% growth, but it is more optimistic about profit margins, as £1bn of synergies from the integration of Novartis/Pfizer assets and strong operating leverage, should enable improvements beyond its peers.
The company will list with a lot of debt – with leverage of around four times earnings – but should be able to reduce this “quickly” thanks to high cash conversion, said Credit Suisse.
Haleon’s price/earnings multiple of 22.4 on 2023 forecasts, per UBS, is “Nestle-like”.
Once shares start trading on Monday, this will give a gauge of the appetite for new listings, said Streeter, given recent volatility.