Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When hard-pressed consumers look for savings, they tend to make an exception for their families’ health. The resilience of brands such as Advil, Sensodyne and Panadol is fuelling investors’ interest in London-listed Haleon — as are fears about the US economy and overvalued technology stocks.
The pure-play consumer health company was among a small handful of European stocks trading up on Monday morning, amid a ferocious sell-off in global equities. It is up about 14 per cent over the past month, as investors have rotated out of growth stocks. It is now more highly rated than Nestlé, a traditionally pre-eminent consumer defensive stock.
Haleon has an unusually low profile for a FTSE 100 heavyweight. True, it has been dogged by fears it could get caught up in US lawsuits over heartburn drug Zantac’s potential links to cancer. That has weighed on its share price since pharma group GSK spun it off in 2022.
But investors appear increasingly comfortable about the litigation risks, and more willing to focus on the company’s solid growth potential. In the medium term, the company expects to expand sales by 4 to 6 per cent a year. Operating profit margins will grow by 0.8 percentage points to 23.5 per cent by 2026, thinks Jefferies’ David Hayes.
The shares trade on a price/earnings multiple of 19 times, nearly three points higher than consumer health peer Kenvue. This 2023 spinout from healthcare giant Johnson & Johnson, has underperformed as it lost share in the skincare market. If Sanofi goes ahead with its plans to spin out its consumer health unit, that may heighten investor interest in trends such as population ageing, a greater focus on wellness and the benefits to cash-strapped healthcare systems of encouraging greater use of over-the-counter medicines.
Haleon still has to prove its mettle. It originated from a joint venture between GSK and Pfizer that included consumer brands acquired from Novartis and has a relatively short trading record. If it sails through a recession, its valuation could become permanently higher at more than 20 times, says Bernstein’s Bruno Monteyne.
There is also an overhang of shares to hold back the share price. But Pfizer has cut its stake by more than a quarter to 23 per cent, while GSK is already out. There has been a shake-up in the rest of the register as consumer-focused investors arrived and pharma-oriented ones left. Since its listing, there have been 13 new investors among the largest 20.
Haleon’s name — a portmanteau of “hale” and “Leon” — is meant to signal health and strength. The signs are that it will live up to its name — even if it takes time to prove it.
