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Analysts raise GlaxoSmithKline’s expected TP to N76

By on September 30, 2014

Following  the high-growth of juice and sports drinks markets, driven by health consciousness among Nigerians and a higher-status perception than lower-cost soft-drinks such as carbonates, analysts at Renaissance Capital have retained their BUY rating on GlaxoSmithKline Consumer Nigeria (GSK) Plc and raised its expected trading price (TP) to N76 per share.

GSK operates in the consumer healthcare, pharmaceuticals and vaccines space in Nigeria. The company has well-known consumer brands, including Ribena, Lucozade, Horlicks, Panadol, Macleans and Sensodyne, and has leading market positions in the sports, energy drinks and analgesics segments.

According to the analysts, GSK’s reported revenue and earnings before interest, tax (EBIT) growth since 2004 is second only to that of Nestlé Foods Nigeria Plc, among the Nigerian consumer names under its coverage.

They stated: “What is equally important, in our view, is the consistency of this growth. GSK reported a decline in EBIT only once over the period, in FY07, from which it rebounded strongly in FY08. Our P/E relative valuation implies a one-year target price for GSK of N76 per share and a one-year expected potential return (including dividends) of 17 per cent.

“GSK has reported a material decline in EBIT in 1H14, but this is predominantly due to the sale of Lucozade and Ribena by GlaxoSmithKline Plc (not covered) to Suntory (not covered) and the imposition of a licence fee as a result. However, this is factored into our numbers and we forecast positive growth going forward.”

The analysts added that GSK’s Ribena has achieved the strongest growth of the top eight brands in the juice category and Lucozade since 2008, adding that “the market leader in the sports and energy drinks segment, has grown faster than the market, according to Euromonitor.”

“GSK’s parent, GlaxoSmithKline Plc, sold Ribena and Lucozade globally to Suntory at the end of 2013. While the products were not strategic to the parent, they contributed 54 per cent of GSK Nigeria’s revenue in FY13. We see significant financial implications from the imposition of a licence fee payable to Suntory, and GSK expects Suntory to enter the market directly in 15 years, said Renaissance Capital.

 

[This Day]