Credit Suisse starts Haleon at 'outperform'

Credit Suisse has initiated coverage of Haleon, GlaxoSmithKline’s recently spun out consumer healthcare arm, at ‘outperform’ with a 368p price target.

The bank said Haleon is a "highly attractive" company. It said that as the only listed pure-play in Consumer Health - an industry with structural growth trends - Haleon’s current valuation fails to recognise the company’s scope to deliver above-guidance organic sales growth of 6.5% in FY22, followed by 4.5% in FY23.

It also fails to recognise the improved portfolio of the business (post recent M&A and divestments) and its ability to leverage scale as the clear global leader, with a market share twice that of its nearest competitor.

Credit Suisse said that based on its analysis of more than 100 country/category cell forecasts, it expects Haleon to deliver 4.2% organic sales growth per annum over the medium term, which reflects around 10 basis points a year market-share expansion.

CS said Haleon has high-quality earnings growth potential of circa 7.5% per year, benefitting from further margin expansion and reduced interest cost.

"Compared to consumer staples, the company has a relatively low exposure to input costs (less than 10% of sales) and emerging market currencies, and is likely more resilient in an economic downturn, in our view," it said.

It added that the step-up in cash conversion should allow the group to de-lever quickly.