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GlaxoSmithkline: Tough Going

By ValueWalk (Jacob Wolinsky)Stock MarketsApr 29, 2021 01:12AM ET
GlaxoSmithkline: Tough Going
By ValueWalk (Jacob Wolinsky)   |  Apr 29, 2021 01:12AM ET
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GlaxoSmithKline (NYSE:GSK) shares reacted positively at first to the release of Q1 results, although doubts subsequently set in, with the shares surrendering much of their early gains.

The company reported a sharp reduction in income due to a tough comparison a year previously, plus the impact of reduced patient visits to their GPs and a muted colds and flu season this year. Underlying sales dropped by 15%, and adjusted earnings were some 33% lower than the previous year.

A Weak Quarter For GlaxoSmithKline

Commenting on the numbers, Steve Clayton, manager of the HL Select UK Income Shares fund, which has a position in GSK said:

"The challenges facing GSK this quarter had been well flagged. A year ago, wholesalers were pulling orders forward to stock up ahead of looming lockdowns. Social distancing has kept colds and flu at bay whilst GPs have concentrated on Covid vaccinations, rather than other treatments."

The reduction in profits has led to a weak quarter for cash generation at GSK, and the company needs to show that they can improve this going forward. Strip out some of the one-off changes to customer behaviour due to Covid-19 and the company has some encouraging underlying progress to talk about. New treatments in respiratory and cancer are growing well and as GPs return to normal operations GSK’s Shingrix vaccine for shingles should return to strong growth.

More importantly perhaps though is what GSK don’t want to talk about; the arrival of activist investor Elliot Management on the GSK share register. Elliot have a reputation for shaking up underperforming businesses and driving strategic change. What they will push for at GSK is yet to be seen, but it’s a safe bet that they see more value taking a course different from that which GSK is currently following.

With major structural change on the cards at GSK, with or without Elliot’s alternative vision, it looks set to be a year of forced evolution at GSK.

GlaxoSmithkline: Tough Going

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GlaxoSmithkline: Tough Going

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