Haleon PLC (LSE:HLN, NYSE:HLN) shares are expected to retreat and could spark renewed takeover speculation after its spin-out as a separate company this week.
Shares in the demerged consumer health group, which debuted at 330p on Monday with a £30.5bn market valuation, fell 7% on its first day of dealings to 308.35p, before dropping to 291.5p on Tuesday morning, sending its market cap below £27bn.
Barclays consumer staples analysts said they “see much to like in Haleon”, but conversations with investors indicated some scepticism that could drag the shares lower.
The bank initiated coverage of the maker of Pandol and Sensodyne with a 348p share price target and an ‘equal weight’ rating.
“It is the leader in an industry that we see as combining defensive growth with structurally high margins,” said analyst Iain Simpson, saying as well as a credible management Haleon has scarcity value as the only quoted pure-play large-cap consumer health company.
“However, from our conversations with investors, many have expressed a desire to see Haleon de-lever its balance sheet and build a track record as a stand-alone company. This has potential to drive a medium-term re-rating, in our view.”
Haleon’s valuation, Simpson and his team believe, is a function of market expectations of the company’s organic sales growth.
“From our conversations with investors, there is a degree of scepticism around its 4-6% target, and significant pushback on our 4.7% medium-term growth forecast.”
As Haleon delivers its results over the coming year, with second quarterly numbers due later this month, the Barclays team expect visibility on this measure to improve.
But with consumers being squeezed hard by the cost of living crisis, the company is perhaps also suffering from investor worries that shoppers will swap away from its brands to cheaper options.
Recent UK supermarket data in recent months has highlighted a considerable switch in demand towards own-brand goods.
Pfizer overhang
Another concern is the overhang from the combined 45% stake owned by former parents Pfizer and GSK.
Pfizer currently holds a 32% stake and GSK around 13.5%. They are prevented from selling for several months under a lockup agreement, which will be lifted on 10 November – or whenever Haleon publishes third-quarter results – whichever happens first.
It was previously thought that Pfizer would hold on to its stake after the spin-off, but the company has announced that it will be selling out of its holding in a “disciplined manner”.
Credit Suisse, which started coverage with an 'outperform' rating and 368p target price, acknowledged that a larger-than-expected selldown from Pfizer and GSK is one of the big risks for the shares.
With the remaining 54.5% owned by GSK shareholders, who received one new Haleon share for each one they owned, the likelihood is the shares are being hit by those who are not have been interested in the consumer health business – especially as GSK has started to look more attractive to many as a focused biopharmaceutical business.
New bid possible?
With Unilever having made a £50bn takeover bid for the business before the demerger happened, it is not beyond the bounds of possibility that another bid may emerge.
Bid action would be expected after the listing, said analyst Danni Hewson at AJ Bell.
Analysts at UBS have heard the bid speculation but said “we do not see an obvious suitor” and they do not believe Haleon could be bid target in the short-term, either.
“We believe Unilever’s £50bn offer, rejected by GSK, included a control premium and, in the current climate, we think the appetite for mega-deals is limited. The most likely candidates would probably face anti-trust issues.”
Credit Suisse agreed that Haleon is not an acquisition target in the near-term, but its 'blue sky' scenario of a 428p share price for Haleon assumes a 2022 take-out EV/EBITDA multiple of 19, similar to the level implied by Unilever’s failed bid, .