GlaxoSmithKline: The first quarter
numbers, released today, include guidance for the five-year period 2016-20, following
last year’s flurry of corporate activity. The success and wisdom of all that
activity is hard to judge at this early stage. As for the guidance I will take
it at face value. Group revenue is expected to grow at an annual rate in the
low-to-mid single digits, with good growth in vaccine and consumer healthcare
sales offset by slower pharmaceutical sales growth as generic Advair looms in
the US. The holding in ViiV healthcare is now to be retained given its good
prospects, with the proposed IPO of GSK’s stake shelved. The transaction cost
savings programme target of £1bn is being brought forward to 2017 (v 2019) with
over half now expected in 2016 (v 2017). Overall savings of £3bn are due by the
end of 2017, but the faster pace is involving higher costs. Putting all this
into their sausage machine leaves annual eps growth guidance as ‘mid-to-high’ single
digits through to 2020, after a high teens decline this year caused by
transactional dilution and Advair competition. The group expects to pay an
annual 80p dividend in 2015/2016/2017.
The return of capital has been reduced to £1bn payable with this year’s
final dividend (probably xd mid-Feb 2016). They cite various potential cash
strains as the reason for this, such as the potential exercise of a ViiV put
option on to them, Advair competition threats and potential pension
commitments.
Now it is time to get out the proverbial fag-packet to scribble on. After
95.4p of adjusted eps last year a drop of say 16% gets 80p. Then five years of say
8% growth gets to 117.5p by 2020. On an 80p dividend that is cover of almost 1.5x.
So even though the company only predicts the 80p dividend through to 2017, I find
it hard to believe that there will be much growth in 2018/2019/2020, if any,
unless eps guidance turns out to be too cautious. So, at 1535p the share are on
19.2x this year’s depressed eps and on 13.1x the 2020 vision. The 80p dividend
is a yield of 5.2%. The special dividend adds another 20p per share for this
financial year. So, another share that fails the dividend growth test, but in a
world of low interest rates that (safe-looking) yield is a mighty temptation. (Neil Cumming,
6th May 2015)
These comments are not a personal
recommendation to deal. Any investments can fall as well as rise in value, so
you could get back less than you invest. I may have a financial interest in
some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk Twitter: @DividendPower
No comments:
Post a Comment