(Sharecast News) – Credit Suisse downgraded GlaxoSmithKline to ‘underperform’ from ‘neutral’ on Wednesday, cutting the price target to 1,400p from 1,580p as it said multiple near-term and strategic challenges make for limited upside versus peers.
The bank expects to see a continued focus on the upcoming split into consumer and pharma units and said this was “a natural time” to revisit the pharma dividend policy.
CS said its ‘PharmaValues 2021’ analysis highlights the poor R&D productivity at GSK and the need to invest in the pipeline.
“Given the stated consumer dividend goals, pharma would need to pay out 84% of earnings to maintain its 80p dividend,” it said, adding that this is not optimal given the need to rebuild the pipeline.
The bank cut its 2022 group dividend estimate to 50p from 80p to reflect what it sees as a more sustainable dividend payout.
In addition, Credit Suisse noted guidance issued by the US Centers for Disease Control that Covid-19 vaccines should not be co-administered with other vaccinations. It pointed out that this includes Glaxo’s shingles vaccine, Shingrix, which is a key growth driver for the company.
“We see this as likely to significantly limit the 1H21 sales of Shingrix, moving sales to the 3Q/4Q flu vaccine season,” it said.
“Covid restrictions are also likely to limit GSK’s ability to reinvigorate ViiV with a trade up to the newer dual agents. The strength of sterling versus the US dollar adds to 2021 headwinds.”
