Company Analysis

GSK 2021H1: Sagging Earnings, Tumbling Profit, Time For New Thinking

Rating: Hold
Current Market Price: N6.10

Latest Dividend: N0.40
Year High: N7.25
Year Low: N6.00
Fair Value: N5.30
Equity AnalystTunde Segun Jeariogbe

Key Investment Ratios

  • In this report, we observed the half-year financials released by Glaxosmithkline Consumers for the period ended, 30th June 2021, compared same with those of the corresponding quarter in 2020 to establish a growth pattern, make projections and achieve valuation analysis.
  • Unlike in the earnings report for the corresponding half-year where it reported a zero Finance Cost, at the end of the 2021 period, Glaxosmithkline reported N3.57 million in Finance Cost.
  • Similarly, it reported a Non-Current Liability at the end of the quarter under analysis unlike in 2020 when it was nil.
  • Generally, the numbers for the period represented a lower performance when compared to those of the 2020 half-year.
  • See the table below for detailed analysis:
Sources: Company reports, NGX, Investdata Research

Company figures

  • The Turnover for the period stood at N9.86 billion, 5.46% below the N10.43 billion reported in the corresponding half-year.
  • Cost of Sales dropped by 7.51% to N7.08 billion against the N7.66 billion used through the 2020 half-year.
  • Operating Profit amounted to N92.26 million, versus N447.84 million achieved in the comparable period of 2020.
  • Operating Expenses used through the first six months of the year is estimated at N2.60 billion, 7.43% above the N2.42 billion reported in the preceding half-year.
  • Profit before Tax was estimated at N88.68 million, the same as an 80.20% drop from the previous N447.84 million.
  • Tax Expenses allowance for the period was N28.78 million, versus N143.31 million in the similar six months of 2020.
  • Thus, Profit for the period was estimated at N59.90 million, 80.33% lower than the N304.53 million in the corresponding period.
Sources: Company reports, NGX, Investdata Research
  • Current Assets of Glaxosmithkline at the end of the quarter was N21.12 billion, the same as 14.60% above the N18.43 billion in the corresponding quarter.
  • Non-Current Assets was valued at N2.38 billion, a 13.93% growth from N2.20 billion in the preceding half-year.
  • Current Liabilities grew by 32.24% to N14.77 billion, compared to N11.17 billion in the 2020 half-year report.
  • As noted above, the company had Non-Current Liabilities of N30.73 million at the end of the 2021 half-year, compared to the zero status posted in the corresponding period.
  • Net Assets is valued at N8.70 billion, versus N9.45 billion in the corresponding quarter.
  • Retained Earnings grew by 8.61% to N8.05 billion, against N8.80 billion in 2020.

Financial Strength/Solvency Ratios

  • The amount reported as Total Liabilities is the same as 62.99% of the Total Assets Value at the end of the half-year under review, higher than the estimated 54.15% in the corresponding quarter.
  • The Total Liabilities at the end of the quarter is the same as 170.17% of the company’s equity value reported at the period; compared to the estimated 118.12% at the end of the 2020 half-year.
  • Glaxosmithkline shareholders’ funds at the end of the quarter was the same as 37.01% of the Total Assets Valuation, a lower ratio when compared to 45.85% achieved at the end of the 2020 half-year business session.
  • Nevertheless, going by the estimated beta value of 0.80x, we can safely conclude that the share price of Glaxosmithkline is less liquid when compared to its industry peers.
Sources: Company reports, NGX, Investdata Research

Profitability Ratios

  • EBITDA margin estimated for the quarter stood at 0.94%, a lower performance over the -4.29% estimated from the 2020 half-year.
  • The profit before Tax reported is the same as 0.90% of the Turnover value, a 79.05% drop from the 4.29% estimated in 2020.
  • Cost of Sales is 71.86% of the turnover, which is only 2.17% below the 73.46% estimated in 2020.
  • Return on Equity stood at 0.69%, as against the 3.22% achieved in 2020.
  • See below for details:
Sources: Company reports, NGX, Investdata Research

Efficiency Ratios

  • Operating Expenses to Turnover ratio is the same as 26.42%, a 13.63% drop in management efficiency from the 23.25% estimated from 2020 half-year financial indices.
  • Turnover to Total Assets Ratios stood at 41.96%, against the previous 50.56% which is a 17.02% drop in management efficiency within the two compared quarters.
  • Working Capital Ratio which indicates a company’s effectiveness in using working capital was estimated at 1.55x a 8.12% growth from the 1.44x estimated in 2020.
  • See below for details.
Sources: Company reports, NGX, Investdata Research

Investment/Valuation Ratios

  • At the end of the 2021 half-year year, the management of Glaxosmithkline earned N0.05 on each of its shares, far lower than the N0.25 earned in 2020.
  • Nevertheless, our half-year adjusted PE/Ratio jacked higher. We have estimated PE/Ratio at 126.76x versus 19.24x in 2020.
  • The said earnings per share yielded only 0.79% of the price of Glaxosmithkline on the Nigerian Exchange as at the time the result was made available to the public.
  • The shares of Glaxo-Smithkline have been estimated at N7.28 in its books as of the end of the 2021 financial quarter, a lower valuation from the N7.91 estimated in 2020.
  • Confirming a marginal under-priced status is the Price to Book Value ratio that stood below unity.
  • See below for detailed investment ratios:
Sources: Company reports, NGX, Investdata Research

Valuation

Impacted by dividend growth between the past few financial years, and taking into consideration the drop in the company’s numbers; we have conservatively valued each unit of Glaxosmithkline’s share price at N5.30 and Rated it a Hold.

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