When investing in a company, I typically look at its track record as well as considering its future prospects. But what if the track record is limited? Take Haleon (LSE: HLN) as an example. As the company was only recently spun off from pharma giant GSK, the value of Haleon shares could offer an interesting buying opportunity for my portfolio. Here is why.
New name, old business
Although Haleon has a short history as an independent listed company, the business itself has been established for decades. Indeed, it owns a variety of household name brands, including Nicorette and Sensodyne.
We also have some sense of how the business has performed over the years, from when it was part of GSK. Just separating Haleon out into a separate company should not on its own dramatically change sales performance in the short term, I reckon.
But what could be different is the cost base. Now able to focus exclusively on its own research and development, Haleon may seek to grow its portfolio. That could hurt profits by adding costs in the short term.
Another potential risk to profits is the cost of providing central corporate functions that were previously shared with GSK. Then again, maybe as a leaner independent company, Haleon can be more ruthless in managing costs than GSK was. That could be good for profits.
Haleon share price valuation
But given all these uncertainties, how is it possible to put a value on Haleon shares before the company issues reports and accounts as an independent company?
For now, such valuations rely on a variety of presumptions. Time will tell whether they are accurate. But one thing puzzles me. At the moment, Haleon commands a market capitalisation of £25bn. It also has about £10bn of debt on its balance sheet, so the market capitalisation does not tell the full story.
Nonetheless, even allowing for the debt, Haleon’s value is far below the £50bn offered for the business just last year by Unilever.
Did Unilever get its sums wrong? It is in the same business, so I would expect it to be able to value Haleon fairly accurately. Could it be that Unilever as a trade buyer hoped to unlock benefits from acquiring Haleon that would not be captured in a purely financial deal? I think that may be true – but the valuation gap is still striking. Haleon has left around £15bn on the table at its current valuation compared to if it had accepted Unilever’s approach last year.
My move on Haleon shares
I reckon that now may indeed offer a unique buying opportunity to buy Haleon shares. The market does not yet have the sort of information I think it would need to make a full valuation. But we do know that the company is on sale for much less than a key rival offered to pay.
But while Unilever may know how to value the firm given its industry expertise, for me, as a private investor, the absence of much financial information on Haleon as a standalone business makes it difficult. For the moment, therefore, I will not be adding Haleon shares to my portfolio.
