A share price pause for breath at GSK (GSK) spin-out Haleon (HLN) is a buying opportunity for investors.

This is a high-quality, large cap company with a strong brand portfolio and a long trajectory of global growth and progressive dividends ahead.

The consumer health outfit behind headache tablet and toothpaste brands such as Panadol, Sensodyne and Advil boasts earnings resilience and offers exposure to one of the fastest growing segments of the wider consumer staples sector, as demonstrated by the buzz surrounding the recent stock market debut for Johnson & Johnson (JNJ:NYSE) spin-off and close Haleon peer Kenvue (KVUE:NYSE) across the Atlantic.

Demerged from GSK and listed on the London and New York stock exchanges last summer, Brian McNamara-bossed Haleon is one of the globe’s largest providers of specialist oral health through products such as Sensodyne, Parodontax and Polident. The £30.2 billion cap also makes respiratory products including cold and flu relief Theraflu and pain relief products include Panadol, Voltaren and Advil, as well as vitamins, minerals and supplements such as Centrum.

The fragmented global consumer health market is ripe for consolidation by companies such as Haleon with differentiated brands and the group has opportunities to tap into trends including premiumisation, notably in emerging markets such as China and India where per capita consumption is a mere pinprick compared to the US.

On 3 May, Haleon reported a strong start to the year with first quarter organic revenue up 9.9% and volume growth of 2.8% despite pushing through price hikes of 7.1%. This allayed fears the cost-of-living crisis could force price-sensitive shoppers to switch to cheaper own-label alternatives, although quarterly profits fell below expectations as cost inflation pressured margins.

Encouragingly, Haleon reaffirmed full year 2023 guidance for organic revenue growth towards the upper end of the 4% to 6% range.

One concern is net debt, which amounted to £9.9 billion at the end of 2022, but last year’s strong free cash flow generation of £1.6 billion provided management with increased confidence in reducing debt faster than originally expected, which could lead to a re-rating.

Haleon’s current enterprise value (including debt) is 20% below the £50 billion bid from Unilever (ULVR) spurned by GSK in late 2021. This suggests the market is significantly undervaluing the long-run prospects of Haleon, which trades on a prospective 2024 price-to-earnings ratio of 16.7, a discount to the likes of Reckitt Benckiser (RKT) and Procter & Gamble (PG:NYSE).

GSK is selling down its stake in Haleon, as is the company’s other major shareholder Pfizer (PFE:NYSE), which will remove a big overhang on, and boost liquidity in, this compelling stock.

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