Are Haleon shares a long-term bargain?

As the owner of famous brands from Sensodyne to Panadol, Haleon (LSE: HLN) strikes me as a possible candidate for my portfolio. Unique brands can give a company pricing power – and I reckon Haleon owns some good ones. So, could buying Haleon shares now be a potential long-term bargain buy for my portfolio?

Profit growth potential

It is still fairly recently that the business was carved out of GSK, so I think it is hard to assess its finances.

Last year, post-tax profits were £1.1bn. That compares to a current market capitalisation of almost £30bn. But I think we will need to see several years’ worth of figures as an independent listed company to get a feel for the long-term trends in Haleon’s financial performance.

What is clear is that it has an impressive stable of consumer goods brands. Such brands can give a company what is known as pricing power. So as some shoppers will prefer to buy a Panadol tablet specifically rather than a supermarket’s own-label equivalent, they are willing to pay a higher price. That can help profits and fend off competition.

Another thing I like about the brand portfolio is that is caters, literally, to buyers’ pain points. From sore teeth to a headache, Haleon products can help people combat an ailment that is causing them discomfort. I think shoppers are willing to spend on such brands, even when money is tight.

That brand portfolio and global reach mean Haleon should have solid long-term profit growth prospects, in my opinion.

Modest performer

Enough about customer pain, what about possible shareholder pain?

After all, GSK has been a poor long-term performer, with the shares falling 18% over the past five years. Haleon shares have been trading just under a year, during which time they have gone up by 2%. That is better than falling, but it is not a stellar start to life as an independent listed company.

One risk I see is cost inflation eating into profit margins. With a complex global supply chain, Haleon has had to deal with prices rising on everything from ingredients to labour costs.

Large job cuts announced this week might help trim costs, but could also damage staff morale. As a long-term investor, that concerns me. A demoralised workforce can be bad for business.

First-quarter sales performance was strong across all geographies and most product categories. But Haleon is still a young company and I think it needs to prove it can grow its business on a sustained basis.

Valuing Haleon shares

That lack of track record makes Haleon shares hard to value.

The company saw costs last year related to breaking off from GSK that ought to fall away from this year onwards. Still, using last year’s earnings, the shares trade on a price-to-earnings ratio of 26, which does not look cheap to me.

If those costs fall and profits grow, for example due to the cost-cutting, Haleon shares could yet turn out to be a bargain.

Whether management can successfully achieve substantial profit growth remains to be seen. So for now, I like the business but do not see it as a bargain. I will not be adding it to my portfolio.

The post Are Haleon shares a long-term bargain? appeared first on The Motley Fool UK.

Don’t miss this top growth pick for the ‘cost of living crisis’

While the media raves about Google and Amazon, this lesser-known stock has quietly grown 880% – with a:

Greater than 20X increase in margins
Nearly 60% compounded revenue growth over 5 years – more than Apple, Amazon and Google!
A 3,000% earnings explosion

Of course, past performance is no guarantee of future results. However, we think it’s stronger now than ever before. Amazingly, you may never have heard of this company.

Yet there’s a 1-in-3 chance you’ve used one of its 250 brands. Many are household names with millions of monthly website visitors, and that often help consumers compare items, shop around and save.

Now, as the ‘cost of living crisis’ bites, we believe its influence could soar. And that might bring imminent new gains to investors who’re in position today. So please, don’t leave without your FREE report, ‘One Top Growth Stock from The Motley Fool’.

Claim your FREE copy now

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More reading

If I’d invested £1,000 in the Haleon shares spin-off, here’s how much I’d have now

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended GSK and Haleon Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As the owner of famous brands from Sensodyne to Panadol, Haleon (LSE: HLN) strikes me as a possible candidate for my portfolio. Unique brands can give a company pricing power – and I reckon Haleon owns some good ones. So, could buying Haleon shares now be a potential long-term bargain buy for my portfolio?

Profit growth potential

It is still fairly recently that the business was carved out of GSK, so I think it is hard to assess its finances.

Last year, post-tax profits were £1.1bn. That compares to a current market capitalisation of almost £30bn. But I think we will need to see several years’ worth of figures as an independent listed company to get a feel for the long-term trends in Haleon’s financial performance.

What is clear is that it has an impressive stable of consumer goods brands. Such brands can give a company what is known as pricing power. So as some shoppers will prefer to buy a Panadol tablet specifically rather than a supermarket’s own-label equivalent, they are willing to pay a higher price. That can help profits and fend off competition.

Another thing I like about the brand portfolio is that is caters, literally, to buyers’ pain points. From sore teeth to a headache, Haleon products can help people combat an ailment that is causing them discomfort. I think shoppers are willing to spend on such brands, even when money is tight.

That brand portfolio and global reach mean Haleon should have solid long-term profit growth prospects, in my opinion.

Modest performer

Enough about customer pain, what about possible shareholder pain?

After all, GSK has been a poor long-term performer, with the shares falling 18% over the past five years. Haleon shares have been trading just under a year, during which time they have gone up by 2%. That is better than falling, but it is not a stellar start to life as an independent listed company.

One risk I see is cost inflation eating into profit margins. With a complex global supply chain, Haleon has had to deal with prices rising on everything from ingredients to labour costs.

Large job cuts announced this week might help trim costs, but could also damage staff morale. As a long-term investor, that concerns me. A demoralised workforce can be bad for business.

First-quarter sales performance was strong across all geographies and most product categories. But Haleon is still a young company and I think it needs to prove it can grow its business on a sustained basis.

Valuing Haleon shares

That lack of track record makes Haleon shares hard to value.

The company saw costs last year related to breaking off from GSK that ought to fall away from this year onwards. Still, using last year’s earnings, the shares trade on a price-to-earnings ratio of 26, which does not look cheap to me.

If those costs fall and profits grow, for example due to the cost-cutting, Haleon shares could yet turn out to be a bargain.

Whether management can successfully achieve substantial profit growth remains to be seen. So for now, I like the business but do not see it as a bargain. I will not be adding it to my portfolio.

The post Are Haleon shares a long-term bargain? appeared first on The Motley Fool UK.

Don’t miss this top growth pick for the ‘cost of living crisis’

While the media raves about Google and Amazon, this lesser-known stock has quietly grown 880% – with a:

Greater than 20X increase in margins
Nearly 60% compounded revenue growth over 5 years – more than Apple, Amazon and Google!
A 3,000% earnings explosion

Of course, past performance is no guarantee of future results. However, we think it’s stronger now than ever before. Amazingly, you may never have heard of this company.

Yet there’s a 1-in-3 chance you’ve used one of its 250 brands. Many are household names with millions of monthly website visitors, and that often help consumers compare items, shop around and save.

Now, as the ‘cost of living crisis’ bites, we believe its influence could soar. And that might bring imminent new gains to investors who’re in position today. So please, don’t leave without your FREE report, ‘One Top Growth Stock from The Motley Fool’.

Claim your FREE copy now

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#FFFFFF’);
})()

More reading

If I’d invested £1,000 in the Haleon shares spin-off, here’s how much I’d have now

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended GSK and Haleon Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

 

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