Member Info for alex1621

Everyone knows about the split, everyone. It’s not moving the SP currently. The macro news for the next 6 months is likely to be poor … price rises, shortages, supply chain issues, earlier than expected interest rate increases, Chinese debt laden developers, Covid and flu this winter … I could go on. That’s what is moving markets and GSK are not immune. So near term sitting on the sidelines may turn out to be wise. During downturns even good solid companies suffer, as good assets get liquidated first.

Another point is that the next update might disappoint, with the Delta variant impacting Shingrix and other sales to the extent they come in below previous guidance. Add to that the macro worries that are unsettling markets and some might wish to sit on the sidelines in the hope of re-entering at a lower point. A risky strategy, but may pay off.

Consumer attracting interest because Pharma would be subject to extensive Government scrutiny. Allowing a vaccine company to be sold to foreign interests during the pandemic wouldn’t go down well. Consumer was always going to be a target of M&A.

There are two main risks in stock market investing, stock specific risk, where the SP is affected by company and sector news, and market risk, where the SP is affected by macroeconomic issues impacting the market in general. The lingering delta variant, inflationary pressures, supply shortages, not to mention central bank response to these, is front and centre at the moment, and markets are trending down as a consequence. If the Covid situation is worse than expected that may well impact GSK, and slow down the pace of getting the businesses back to normal. Jeffries indicated that Shingrix sales have slowed as a consequence of the delta variant, but their price target was still 1925p as the issues are likely to be temporary and they believe there is value to be released with the separation. We will get a better picture in October I guess. If GSK was a private business we’d all sleep better on account of not being tormented by Mr Market.

The split is designed to release value from what is effectively a conglomerate, the effect of which has been to undervalue the divisions. The new Pharma company will have less debt and payout a dividend at a lower level, providing the resources to fund growth. The theory is that 1 + 1 is greater than 2. My personal view is that the Consimer division will not survive long as a stand alone company, so shareholders will benefit from that. And if pharma and vaccines show growth near term they are likely to be re-rated by the market. So barring some world macroeconomic disaster the next year or two look promising.

My point is that the uncertainty surrounding Brexit has been a dampener of the UK market since July 2016. I’m not a fan of Brexit and believe that the UK has underperformed its potential since the vote. But the picture is clearer now and we are seeing more strength in GBP as a consequence. It wasn’t an endorsement of Brexit, as that’s not my view.

I wonder if you are moving from one of the cheapest stock exchange to the most expensive at the wrong time? Brexit is behind us, soon Covid pandemic will be too, and the UK market is historically cheap relative to others, in particular the US. If inflation takes a grip it will damage US growth stocks more than UK value. With GSK the results beat consensus and the forward statement was positive, so I’ll focus on that rather than the lacklustre market reaction.

GSK indicated that 2021 would not be a great year, so I’m not sure that they need to match last year to be above consensus? So I’m looking for an improving picture and a decent forward outlook. Market reaction is always difficult to gauge, whatever the results.

I believe at the tail end of their update RNS today they said they would be presenting on that subject in 2022, prior to the split.

Yes, and they can sell it off at a time of their choosing.

Okay … I’m strictly fundamentals, although I like to see where a share has traded in the past, so take a look at the graph for that reason.

I see a lot of comments about a drop in SP next week? I believe the dividend cut is in the price, so the question is whether the presentation is well received, or not. If it’s well received I’d expect, everything else being equal, to see an increase. If it’s not well received Elliot will have a stronger hand with other major holders. Recent analyst updates have been more positive. I have the impression the consensus is that GSK is undervalued. So holders might be surprised on the upside.

It’s a difficult one to predict. If that approach makes both companies stronger post-split it might be well received. We will know for sure on 23 June.

When you sell a business the employees move too ... so they’d all do what they did before, within a new organisation. Shareholders would presumably get paid off in cash or get shares in the new organisation. Sunday Times reporting the Elliot seeking to release value in the Vaccine business, and the Daily Mail suggests they are looking to replace the CEO. EW will need to impress on 23 June.

I read somewhere yesterday that a $5m ransom was paid. Not sure about accuracy, as I glanced at it.

Looks like Beazley was amongst the insurers of Colonial Pipeline, who have been subject to a ransomeware attack. Might have help take the shine off the update?

I haven’t seen much evidence of institutional selling but hedge funds AQR and Marshall Wace have been on the shorting list in recent months. Over the last month the SP has been pushing down steadily in good days and bad. When sentiment is gloomy and a sector becomes unfashionable it’s easier for them to control matters ... the update wasn’t terrible but probably requires consistently better updates to turn the tide. One for the patient investor, I think.

In the Times today they report that Elliot Management is having meetings next week with fellow major shareholders in GSK.

You can be sure the journalist checked his sources, and I suspect the sources are some of the institutional shareholders that are attending the meeting. No reported comments from Elliot although I’d guess that’s only a matter of time now.

I believe a foreign entity is required to update at 5%. Given the news was an FT scoop I’d guess they are still accumulating, hence no comment from them. A few years ago La Republica newspaper of Italy reported that Elliot had a stake in Mediobanca. The next day Elliot issued a denial.

Not a great result by any stretch, but the forward outlook appears more promising, as the world returns to some kind of normality the results should bounce back strongly.