BofA Merrill Lynch reinstates Haleon at ‘buy’

Bank of America Merrill Lynch reinstated coverage of GSK spinoff Haleon on Tuesday, with a ‘buy’ rating and 390p price target.

The bank said it expects Haleon to grow faster than the consumer health category. It forecasts the company to grow at an organic sales compound annual growth rate of 5.6% from 22-25E, which is more than the expected 3.7% growth rate for the consumer health category.

In addition, it said Haleon market share expansion should be supported by leveraging its global leadership with category penetration and emerging market opportunities, e-commerce growth, and Rx-to-OTC upside.

Rx-to-OTC is the transfer of proven prescription drugs to non-prescription, over-the-counter status.

It also pointed to sector resilience in pricing and margins.

BofA said Haleon has lower than typical staples exposure to raw materials - less than 10% of sales.

"Consumer health has high barriers to entry, hence below staples average competition from small players in emerging markets and private label in developed markets," it said.

This results in lower exposure to risk of price downgrades (the bank's key sector concern for 2024) and superior margins versus staples, it said.