GlaxoSmithKline - A cracking yield and Neil Woodford at the gates.

GlaxoSmithKline (GSK.L): Thanks mainly to the Novartis deal there are lots of “adjusted”, “core”, “pro-forma” and “reported” lines in these third quarter, to 30^th September (all constant currency), numbers. So, reported 3Q sales were up 11% at $6.1bn, or +5% on a pro-forma basis. Nine-month sales were £17.6bn, up 6% reported and 2% pro-forma. In the quarter Global Pharma sales fell 7% (pro-forma), with Seretide/Advair a key element (price and volume), but this was off-set by a strong performance from HIV-related products. There was steady progress in Vaccines and the beefed up Consumer Healthcare. This broad pattern was also true of the nine-month totals. Core pre-tax profits of £1,568m were down 5% (nine-month £3,893m, -6%), whilst eps of 23.0p were down 13% with a nine-month running total of 57.7p (-10%), whilst total Q3 eps of 11.1p made a nine-month running total of 181.7p. The dividend was maintained at 19p. After all the corporate transactions, net debt is a manageable £10,551m against £14,788m a year ago.  

The core eps guidance for 2015 is maintained, being “to decline at a percentage rate in the high teens”, mainly due to the effects of the Novartis deal and Seretide/Advair declines. Looking out to 2016, core eps are expected to bounce by a double-digit percentage, partly helped by getting sales and synergy benefits out of the Novartis deal. The group confirms that it expects to pay an annual dividend of 80p in 2015, 2016 and 2017. Further out the new product pipeline (with 40 new drugs/vaccines in it) is expected to produce £6bn of annual sales and will be highlighted at an upcoming R&D day. The shares have been quite perky of late and the market liked these results, with the price now at 1402p against summer lows of 1227p. So consensus eps for this year is 76p, which is a PE of 18.4x, dropping to 16.5x on 84.8p of eps in 2016 and the 80p dividend is a whopping 5.7% yield. The maintenance of the dividend is predicated on a strong balance sheet and renewed profit momentum as new products kick in post the current patent cliff. If you are happy with that premise then the shares are a happy hold. If you feel that there is many a slip etc. then that dividend becomes more questionable as does the whole investment case. However, Neil Woodford is already holding management to the fire, reportedly calling for a full scale break up, which may act as a back-stop to any renewed share price weakness. For now I will remain a believer, whilst acknowledging that faith could be mis-placed. (Neil Cumming^, 29^th October 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