Geopolitical turbulence and Donald Trump’s tariffs mean uncertainties abound for investors, with the outlook for global markets and economies likely to remain unclear for some time to come.
Given this backdrop, savvy portfolio builders should increase their exposure to high-quality, cash-generative large-caps whose earnings have a defensive bent.
One shining example is Haleon (HLN), the world-leading consumer health company with a strong brand portfolio, a long trajectory of global growth and progressive dividends ahead as well as limited exposure to tariffs.
Despite delivering market share gains since its July 2022 demerger from GSK (GSK), driven by high levels of brand investment, and deploying its strong cash flows to pay down debt, Haleon’s £43.6 billion enterprise value remains some 13% below the £50 billion bid for the business from Unilever (ULVR) spurned by GSK back in 2021.
This suggests the market continues to underappreciate the resilience and growth potential of Haleon, which is better placed to win in its marketplace as a focused standalone business.
HIGH-QUALITY GROWTH
Guided by chief executive Brian McNamara and with former Tesco (TSCO)boss Dave Lewis in the chair, Haleon is the consumer health outfit behind an array of trusted headache tablet and toothpaste brands.
The £35.6 billion-cap is one of the globe’s largest providers of specialist oral health through Sensodyne, Parodontax, Polident and Aquafresh, and manufactures respiratory products including cold and flu relief Theraflu and pain relief products including Panadol, Voltaren and Advil, not to mention its portfolio of vitamins, minerals and supplements such as Centrum.
Haleon’s attractions include earnings resilience and pricing power, reflected in gross margins north of 60%, and the company offers exposure to one of the fastest-growing segments of the wider consumer staples sector, since the outlook for the consumer health industry is underpinned by structural tailwinds including ageing populations, growing middle classes in emerging markets, overwhelmed public health systems and unaddressed consumer needs.
Highly fragmented, the global consumer health market is ripe for consolidation by companies such as Haleon with differentiated brands, and the FTSE 100 group has opportunities to tap into trends including premiumisation in emerging markets such as China, India and across Latin America.
Haleon’s supply chain optimisation programme is expected to unlock cumulative gross savings of £800 million by 2030, and should strengthen its manufacturing footprint in key emerging markets such as China and India.
HEALTHY RETURNS
Haleon is a top 10 holding in the Edinburgh Investment Trust (EDIN) managed by Imran Sattar, who attended the company’s Capital Markets Day (1 May) and believes Haleon is ‘a lovely niche business’ and ‘far and away the best consumer goods business available for a UK investor’.
Sattar tells Shares the structural growth dynamics in over-the-counter consumer health are ‘very powerful’ and stresses Haleon is ‘long duration, which we really like, because often the market gets the growth rate right for years one and two but often fades the growth down over years three to 10, and we think Haleon has the potential to grow at very attractive rates for a very long period of time’.
When buried within GSK, Haleon ‘essentially operated a bit like a pharma company, but the products it sells are very low risk,’ explains Sattar, ‘so we think there are interesting opportunities to improve Haleon’s commercial organisation and years and years of margin growth to come.’
Analysts at Berenberg believe Haleon is entering ‘a new era of growth and increased shareholder returns’, forecasting best-in-class annual organic sales growth of 5.8% for 2025 through to 2030.
With the company’s leverage expected to reach management’s target of 2.5 times net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) by the end of 2025, the broker now forecasts £750 million in share buybacks for 2026, rising to £1.5 billion in 2029, on top of progressive dividend payouts.
Based on Berenberg’s estimates for the next three years, Haleon’s forward price-to-earnings ratio drops from over 20 times to a more palatable 17 times on 2027 forecasts.
‘As growth in the consumer staples sector becomes scarcer, we view the stock’s multiple as undemanding for a company offering 5.8% medium-term like-for-like sales growth,’ say the analysts, who forecast net debt/EBITDA falling from 2.5 times in 2025 to 1.5 times in 2030, which will leave room for potential bolt-on acquisitions in ‘strategic growth spaces’.
DISCLAIMER: James Crux has a personal investment in Haleon.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
magazine
