HSBC starts Haleon at 'buy'

"We view Haleon as possessing an advantaged portfolio with strong positions across its main product segments and geographies," HSBC said.

"More important than this, we regard the company as demonstrating superior execution and having excellent potential for growth both within and beyond its current categories. All of this should underpin consistent mid-single digit-organic sales growth alongside steady progress on underlying margins."

HSBC said there are a number of elements to its confidence. For a start, it thinks the group’s oral care business can continue to deliver mid-to-high-single-digit organic sales growth on a consistent basis.

"It still has plenty of scope to improve penetration in its key therapeutic areas of sensitivity, gum health and denture care," it said.

The other feature that distinguishes Haleon from its peers is that it looks to be taking some of the most interesting strides in new therapeutic areas, such as its erectile dysfunction product licencing from Futura medical, HSBC said.

"It also has medium-term optionality from Rx to OTC switches," the bank said.

"We think that Haleon can deliver robust margin expansion over the medium term thanks to its new productivity programme and better leverage as volume growth rebuilds.

"We recognise that Pfizer’s 22.6% stake in Haleon means that there are likely to be further placings in the coming months and years, given previous comments on reducing its stake, but the relatively modest reaction to the most recent 10% placing suggests that this should not be a major constraint to the share price. Having been spun out with a relatively high level of gearing, strong cash generation in the last 18 months has seen this drop to under 3.0x ND/EBITDA."

HSBC said that on its current forecasts, Haleon trades on a 2024 estimated price-to-earnings of 18.3x and is broadly in line with European Consumer Staples on a 12-month rolling PE basis.

"Given the prospect of consistent circa 5% organic sales growth alongside steady margin expansion and further de-gearing, we think that Haleon can earn a meaningful premium to the wider European Consumer Staples sector over time," it said.

At 0900 BST, the shares were up 1% at 323.40p.