GSK share price: Pharmco still struggles to turn profits into cash

on May 3, 2019
Updated: Mar 11, 2020

Hargreaves Lansdown reckons that while GlaxoSmithKline (LON:GSK) has delivered profits ahead of expectations, it is still struggling to turn them into cash, Citywire reports. The comments came after the blue-chip drugmaker posted a rise in sales and earnings earlier this week, having benefitted from strong demand for its vaccines and HIV treatments.

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GSK’s share price closed lower yesterday, giving up 0.79 percent to 1,547.40p, underperforming the broader UK market, with the benchmark FTSE 100 index closing 0.46 percent in the red at 7,351.31 points. This morning, the shares have been little changed, having inched 0.04 percent to 1,548.00p as of 08:16 BST, as compared with a 0.2-percent gain in the Footsie.

HL weighs in on GSK

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Citywire quoted Hargreaves Lansdown analyst Nicholas Hyett as commenting that GSK’s cash conversion had “deteriorated significantly, partly down to timing, but also because headline profitability is being flattered by revaluations that don’t turn up in the all-important cashflow statement”. The comments came even as the blue-chip drugmaker posted a rise in product sales for the first quarter.

Hyett, however, reckons that investors should give the pharma giant ‘the benefit of the doubt, at least for now’, as product launches have performed well and the labs are busy. The pharmco’s chief executive Emma Walmsley said in the company’s results statement this week that “strengthening the company’s pipeline remained GSK’s number one priority”.

GSK meanwhile continues to expect a decline in full-year earnings as a generic version of its respiratory drug Advair hit the US market.

Other analysts on group

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UBS reaffirmed the blue-chip pharmco as ‘neutral’ yesterday, with a target of 1,630p on the GSK share price, while Credit Suisse, which is also ‘neutral’ on the stock, set a valuation of 1,600p. According to MarketBeat, the FTSE 100 drugmaker currently has a consensus ‘hold’ rating and an average price target of 1,524.57p.

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