GSK (GSK) £14.59

Gain to date: 2.9%

Global biopharma company GSK (GSK) is one of Shares’ 2023 picks of the year, where we said to buy last December at £14.18. We believe the shares’ discount to the sector will narrow as concerns around Zantac-related litigation recede and management continues to deliver operational improvements.

The stock currently trades on 9.4 times forecast earnings for 2024 versus approximately 16-times for its peer group.

A large class action suit claiming heartburn drug Zantac causes cancer was dismissed in December 2022 on the basis it lacked scientific evidence. Another bellwether trial is due to be heard in July 2023.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

GSK has continued to demonstrate strong momentum with first quarter sales and earnings beating analysts’ expectations on 26 April, driven by strong growth across the vaccines franchise.

On a group basis, adjusted earnings per share grew by 7% year-on-year in constant currencies. The company’s shingles vaccine Shingrix saw sales increase 11% in constant currencies to £833 million, driven by geographical expansion and market growth. Sales of meningitis vaccine Bexsero grew 25% in constant currencies to £280 million.

The report was the third consecutive quarterly earnings beat which demonstrates the company is regaining its mojo which it needs to do to appease activist investors which have criticised prior poor execution and lack of ambition.

GSK reaffirmed full-year guidance and gave a positive outlook as it looks to progress 58 vaccines and speciality medicines under development with 17 in late-stage trials and four expected to be approved in 2023.

Shore Capital’s Sean Conroy believes GSK’s respiratory syncytial virus vaccine for older adults looks ‘nailed-on’ for regulatory approval in the US with data expected in June.

WHAT SHOULD INVESTORS DO NOW?

Strong underlying business performance is not reflected in the share price performance due to the overhang from the class action suits related to Zantac.

We believe investors should remain patient and focus on the fundamentals which remain supportive. Meanwhile, the shares offer a 4% dividend yield and continue to see upward earnings revisions.

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