Berenberg starts coverage of Haleon at 'buy'

Berenberg initiated coverage of consumer health company Haleon on Wednesday with a ‘buy’ rating and 407p price target.

The bank said its investment case is based in part on the US launch of Eroxon, which it expects to drive better-than-expected organic sales growth of 5.8% in 2025 (consensus 4.9%).

Berenberg said the opportunity from the US launch of Eroxon - the first-ever over-the-counter erectile dysfunction (ED) topical cream - is "substantial".

It noted that among men of all ages, 20% suffer from ED, but the condition is more pronounced in older age groups, as 50% of over 40s experience ED.

"Importantly, 80% of men who suffer from ED are not taking any treatment, meaning the addressable market for Eroxon is significant," it said.

"We conservatively estimate that the US rollout will improve group organic sales by on average 0.8pp in its first five years (2025-29). We note that there are already encouraging signs from the rollout of Eroxon in the UK and Belgium, with the brand gaining 20% share in its first 12 months."

The bank’s investment case is also based on Haleon’s exposure to attractive categories that it expects to grow 4.6% in the medium term, which is above Berenberg’s forecast sector average of 4.1%; and the stock trading on a valuation discount of 17% to key household and personal care (HPC) peers.

Berenberg noted that Haleon trades on a 12-month forward price-to-earnings of 17.3x.

"For a company offering 5.6% medium-term organic sales growth, we view the stock as mispriced," it said.

"We believe that a re-rating will be driven by continued delivery of superior top-line sales growth, attractive gross margins, positive surprises and earnings upgrades on the back of the US launch of Eroxon within the next 12 months. Further prescription-to-OTC (Rx-to-OTC) switches will support additional growth in the medium term."

At 1340 BST, the shares were up 1.3% at 326.80p.