At £3, the Haleon (LSE: HLN) share price is basically flat since the consumer health company demerged from GSK and went public in July 2022.
Given the challenging investing backdrop, I feel that’s a resilient showing. And on that basis, I’m wondering whether the FTSE 100 stock could make a decent defensive addition to my portfolio.
Strong brands and fair value
There are a few things that appeal to me as a potential investor.
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For starters, with a market cap of £29.8bn, Haleon is the world’s largest standalone consumer healthcare firm. So it has scale and is profitable (it made £1.6bn in operating profit last year).
Additionally, its five brand categories cover the full range of consumer health: Oral Health; Vitamins, Minerals and Supplements; Pain Relief; Respiratory; and Digestive Health. And it has strong brands across each of those categories, including Sensodyne toothpaste and Panadol painkillers.
In theory, these trusted brands should give the company pricing power to sustain and grow profits.
Another positive is that Haleon pays a dividend. For 2023, analysts are forecasting a total payout of 5.51p per share. That translates to a dividend yield of about 1.7% at the current share price.
Finally, the shares don’t appear overvalued. They’re trading on a forward-looking price-to-earnings (P/E) ratio of around 18. For 2024, the forward P/E multiple drops to 16.7. That’s about in line with other consumer-focused businesses like Diageo, Unilever, and Reckitt Benckiser.
Q3 results
In Q3, the firm said that organic revenue rose 5% year on year to £2.8bn, while operating profit increased slightly to £584m.
However, overall volumes for the quarter declined by 1.6%. This means that growth was driven by price rises.
Are cash-strapped consumers now opting for cheaper unbranded alternatives? That’s a risk, though we can’t be sure from a single quarter.
Looking forward, Haleon still expects full-year organic revenue growth of 7%-8% and adjusted operating profit growth of between 9% and 11% (on a constant currency basis).
While those are healthy numbers, net debt stood at a hefty £9.5bn in June (down from £10.7bn at the demerger).
Another issue is that GSK raised £885m recently from selling part of its stake in Haleon. It still has a 7.4% shareholding, and Pfizer also has a lot of shares that it plans to sell. I’m concerned this could put downward pressure on the Haleon share price in the coming months.
My decision
Still, I think the stock has a lot going for it. The permanent demand for consumer healthcare products gives it a defensive quality that could play an important role in my portfolio.
Longer term, Haleon also has the opportunity to consolidate quite a fragmented global market. That said, acquisitions are costly and I’m already not keen on that large net debt position.
Plus, speaking personally, I do flinch every summer at the price of some branded hay fever tablets (and painkillers). Especially when there are far cheaper alternatives next to them.
That’s not typically the case with food and drinks brands, though, where I have my go-to favourites. So I do worry that the consumer healthcare market suffers from a relative lack of brand loyalty from consumers.
Weighing everything up, I’m going to pass on the stock. I feel there are better FTSE 100 opportunities for my money today.
