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• Since being spun off from GSK, Haleon has performed about as well as anyone could have hoped.
• The consumer health group has been growing sales at a steady clip thanks to full control over R&D and marketing budgets, reducing leverage thanks to increased cash flow, and conducting M&A to rid itself of lower growth brands and bulk up in attractive areas.
• If Haleon can continue growing sales from its ‘Power Brands’ like Sensodyne, Advil, and Theraflu at 5%+ rates then achieving the medium-term target of consistent 4%-6% organic growth is very achievable. Pair that with ongoing margin improvements and reduction in interest payments and you have a recipe for a group that’ll have plenty of cash to either spend on M&A or return to shareholders through its dividend and share repurchase programmes.
• Those financial considerations and the defensive nature of the consumer health market means we think Haleon is worth considering in January at its current valuation of circa 20 times forward earnings.