GSK share price forecast: why the company is splitting up

The GSK share price forecast is reacting to plans to split the pharma and consumer health divisions, with the CEO facing a rebellion from activist investors.co

In this forecast

Two-and-a-half years after announcing the plan, GlaxoSmithKline (GSK) has confirmed that its pharmaceutical business will separate from its consumer health arm. The latter will be spun off into a new publicly listed company.

This comes after a trying time for GSK stock. GSK is the world's largest vaccines company in terms of revenue, but fell behind rivals in the race to develop a coronavirus vaccination. While Pfizer, AstraZeneca and Moderna are among brands who’ve successfully brought a Covid-19 vaccine to market, GSK is lagging. Phase 3 trials for its vaccine candidate only began in late May 2021, and with a fair wind, its product might only secure approval for widespread use at the end of this year.

The GSK share price has also been overshadowed by a spike in patient deferrals for elective procedures, exacerbated by the coronavirus pandemic. GSK's stock price fell 9.9% in the 12 months to 12 July, resulting in a price of 1,439p. Over the same period, Pfizer's stock rose by 20% and AstraZeneca’s by a more modest 2.3%.

GlaxoSmithKline stock analysis exposes other challenges when it comes to research and development. Up to £3bn in sales is expected to vanish when GSK loses patent exclusivity on the HIV drug dolutegravir in six years' time. To compound the problem, a number of high-profile drugs that were in the pipeline have fallen through in trials. This could affect the company's bottom line in the medium to long-term. 

GSK price history

Date Close Change Change(%) Open High Low
Oct 22, 2021 39.71 0.16 0.40% 39.55 39.73 39.52
Oct 21, 2021 39.48 0.19 0.48% 39.29 39.48 39.20
Oct 20, 2021 39.39 0.24 0.61% 39.15 39.47 39.09
Oct 19, 2021 39.10 0.28 0.72% 38.82 39.28 38.78
Oct 18, 2021 38.59 -0.15 -0.39% 38.74 38.78 38.53
Oct 15, 2021 38.93 0.23 0.59% 38.70 38.96 38.64
Oct 14, 2021 38.66 -0.18 -0.46% 38.84 38.87 38.62
Oct 13, 2021 38.72 0.34 0.89% 38.38 38.97 38.36
Oct 12, 2021 38.57 -0.60 -1.53% 39.17 39.19 38.52
Oct 11, 2021 38.18 -0.29 -0.75% 38.47 38.56 38.18
Oct 8, 2021 38.62 -0.16 -0.41% 38.78 38.93 38.58
Oct 7, 2021 38.60 0.40 1.05% 38.20 38.76 38.18
Oct 6, 2021 38.06 0.15 0.40% 37.91 38.13 37.73
Oct 5, 2021 38.15 -0.12 -0.31% 38.27 38.45 38.15
Oct 4, 2021 38.34 0.15 0.39% 38.19 38.60 38.16
Oct 1, 2021 38.05 -0.11 -0.29% 38.16 38.29 37.90
Sep 30, 2021 38.14 -0.27 -0.70% 38.41 38.52 38.13
Sep 29, 2021 38.27 0.23 0.60% 38.04 38.35 38.02
Sep 28, 2021 37.99 -0.16 -0.42% 38.15 38.20 37.84
Sep 27, 2021 38.43 -0.01 -0.03% 38.44 38.60 38.29

What the split means

GSK's share price rose by about 1% after plans to spin off the consumer business were unveiled. Let’s delve a little deeper into what this will involve.

Ambitious targets have been set for "New GSK", the name of the refreshed pharma arm. It will remain under the helm of chief executive Emma Walmsley. Investors have been advised that the company will aim for sales growth of 5% and operating profit growth of 10% between now and 2025. 

The company wants to positively impact the health of more than 2.5 billion people over the coming decade. The demerger is expected to create a "new world leader in consumer healthcare," the company said, with the split expected to be confirmed by the middle of next year. GSK's brands include toothpaste lines (Sensodyne and Aquafresh), smoking cessation products (Nicorette and Nicotinell) and pain relief brands (Panadol and Advin).

This new consumer-facing company will be home to a portfolio that generated annual sales of £10bn last year, and is "well-positioned for further growth". GSK owns a 68% stake in the consumer healthcare division. Of this, 80% of the value from the demerger will be returned to shareholders, but New GSK plans to continue holding the remaining 20%. Pfizer, which owns the remaining 32% stake, also appears to be gearing up for an exit.

GSK shares will also be affected by a significant change in dividend payments. The dividend stood at 80p for the whole of 2021, but is set to fall to 45p in 2023.

Investor pushback

More uncertainty around GSK stock comes from activist investors at Elliott Management, led by Paul Singer. In a lengthy letter, Elliott welcomed the split, but warned that GSK has "underperformed for years, operationally and financially". It suggested that Walmsley should be forced to reapply for her job after the demerger.

Such measures were dismissed by GSK, which replied:

"The board strongly believes Emma Walmsley is the right leader of New GSK and fully supports the actions being taken by her and the management team, all of whom are subject to rigorous assessments of performance."

Elliott Management's decision to snap up a multibillion-pound stake has raised alarm bells. Back in May, The Times in London reported that the British government was so concerned about the investment that it had asked officials to monitor the situation. This was based on concerns that Elliott could attempt to engineer the sale of GSK’s pharma business.

With the group running 11 sites across the UK, a number of politicians told the newspaper that the company is a key part of the country's pharmaceutical muscle, while the head of the Commons Business Select Committee described GSK’s capacity as "critical to our national security". 

It remains to be seen whether an industry rival moves to buy the consumer healthcare side. But any offer from the likes of Johnson & Johnson could draw the attention of regulators.

GSK stock forecast: What's next

The GSK share price forecast in the coming 12 months is mixed. Murmurings of takeover offers or fallout from intervention by activist investors could have an impact, alongside any breakthrough moments in its race to bring a coronavirus vaccine to market.

When it comes to the GSK share forecast for 2021, a low-end estimate indicates that the Glaxo share price will fall by 12.9% in the coming year to 1,250p. At the other end of the scale, the high-end forecast predicts a 39.4% rise to 2,000p, a level not seen for 20 years. Meanwhile, the median GSK stock forecast comes in at 1,500p, a modest 4.5% bump from where the shares were on 12 July.

Trade GlaxoSmithKline plc - GSK stock price

GlaxoSmithKline plc
Daily change
39.71
Low: 39.55
High: 39.71

FAQs

GSK shares have fallen by 9.9% in the 12 months to 12 July, and by 12.9% over the past five years.

The company's CEO, Emma Walmsley, recently admitted: "I am very aware that GSK shares have underperformed for a long period."

Glaxo Smith Kline has lagged behind rivals when it comes to shareholder returns over the past four years. The coronavirus pandemic has not helped, as this has disrupted routine vaccination programmes.

According to the Financial Times, five analysts rate GSK stock a buy; six say Glaxo's share price has the potential to outperform the market in the next 12 months; 16 have a hold rating in place; and two say GSK shares will underperform. There are no sell ratings.

Currency.com offers GSK shares in tokenised form, allowing you to gain exposure to the share price without owning the underlying stock. This gives you the opportunity to enter into short positions if you believe prices will fall.

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