The company is valued at 13.5x FactSet’s consensus forecast for 2023 revenue. That’s a lower multiple than other companies selling consumer healthcare products, including:

Unilever

(UL) is trading at more than 17x its estimated revenue in 2023.

Procter & Gamble

(PG) is trading at 24x expected earnings.

Unilever sells ice cream, Procter & Gamble sells toilet paper, and many other products, while Haleon is a large, dedicated consumer healthcare company.other publicly traded purely consumer healthcare companies, especially

Perigot

(PRGO) and

Prestige Consumer Healthcare

(PBH) operates on a much smaller scale, with a market value of less than $6 billion.

The lack of peers and Haleon’s poor track record as an independent company make it more speculative than other consumer products companies.It will be more clear after several quarters of earnings reports, and

Johnson & Johnson
of

(JNJ) plans to spin off its consumer health division next year. Haleon and J&J spinoffs form a new category. This is a newly publicized consumer health company that has been under the umbrella of a big pharmaceutical company for decades.

Haleon, which began trading as a separate company in July, sells oral health products such as Sensodyne and Aquafresh. Over-the-counter medicines like Advil and Theraflu, vitamins and supplements like the multivitamin brand Centrum.

The consumer health sector has attractive attributes. Demand tends to hold up in recessions, and some categories have high barriers to entry. In a mid-July note, UBS analyst Guillaume Delmas estimated that Hareon’s business would grow at an underlying rate of 3.3% annually from 2023 to 2026.

Hareon is set to be the dominant player. Still part of GSK, 2021 sales were £9.5 billion or $11.5 billion. That’s less than his J&J’s consumer health division, which sold $14.6 billion worth of merchandise that year, but more than Procter & Gamble’s health division, which sold $10 billion.

A stand-alone consumer health sector attracts investor attention and earns steady income from dividends, which may result in higher valuations for investors looking for steady but less dramatic growth.

Haleon says it plans to start making payments in the first half of next year at a “bottom” of 30% to 50% of revenue. Analysts expect him to pay an annual dividend of 6p per share in 2023 and 7p per share in 2024, according to FactSet. Based on Haleon’s recent price of 258 pence, the dividend yield in 2023 would be 2.3%.

Some investors were wary of Hareon early in the trade. GSK started the spin-off with a hefty net debt of £10.3 billion ($12.4 billion). That’s four times his earnings before interest, taxes, depreciation, and amortization. The company’s goal is to triple his EBITDA by the end of 2024.

Celine Pannuti, an analyst at JP Morgan Cazenove and whose Hareon rating is underweight, isn’t encouraging. “With the same multiple, you can buy a company with no leverage,” she says. Pannuti said the large amount of debt may prevent the company from making further acquisitions in the short term.

Tobias Hestler, Haleon’s chief financial officer, said the company is achieving “very strong cash conversions.” He said Haleon would be able to do one small transaction a year for brands with annual revenues from his $30 million to his $100 million and still meet his debt targets. says. But he says there isn’t much major integration left to do after founding his own company.

Pfizer

(PFE), GSK, and

Novartis

(NVS).

The company has set a revenue growth forecast of 4% to 6% annually, and Hoestler said Haleon is relying on growth to only slightly outpace the sector. “We’ve historically and consistently done that in our oral health business, where we’ve grown beyond Category 2 to 3. [times]’ he says.

Other potential headwinds include plans to sell stakes in GSK and Pfizer, which together own about 45% of the company. The lockup period will last him until November 10th.

Pfizer CEO Albert Bora says Pfizer will not sell blindly. “We are not going to do anything stupid and destroy value,” he says. Barons“It’s not strategic for us, but it’s clearly a value maximization.”

GSK said in a June statement that it would monetize Haleon shares in a “disciplined manner”.

New concerns surfaced in early August as investors focused on a lawsuit over the heartburn drug Zantac. GSK and Pfizer have been selling his Zantac over-the-counter at different times, and Haleon could seek compensation from both companies if found liable in the lawsuit. It’s too early to tell if Haleon will ultimately have to pay anything, but when analysts raised the issue in his early August, the company’s stock price fell in two days. fell 12.5%.

Potential liability will become clearer when the trial begins next year. Uncertainty, on the other hand, gives investors a chance to grab a bargain. Haleon is good for betting on emerging recession-resistant categories.

write destination Josh Nathan-Kazis josh.nathan-kazis@barrons.com