GSK – Haleon placing; Meningitis vaccine progress; Zantac litigation win
HBR – In-line trading update
HLN – GSK placing; EMTN programme
IR5B – Solid trading update
PRX – PayU disposal report
RHM – Further contract wins
RYA – MAX order underpins growth plans
IR5B – Solid trading update
Irish Continental Group released a solid trading update on Thursday. In the period to 6 May the Group carried 129,600 cars (+5.9% y/y); 229,200 trucks (+3.2% y/y); 100,100 containers (-13.9% y/y); and handled 104,700 units at its terminal operations (-8.3% y/y). In the first four months of the financial year (i.e. to end-April) Group revenue of €163.4m was +1.4% y/y while net debt has reduced to €124.9m on a pre-IFRS 16 basis compared to €128.7m at end-2022. Overall the narrative is one of resilient Ferries operations and Container & Terminal weakness which mirrors the slowdown in deep sea volumes observed in recent months. Bloomberg data have ICG trading on just 11.8x FY 2024 earnings and yielding 3.3%. This stock is very inexpensive, in my view.
HBR – In-line trading update
Harbour Energy released its Q1 (end-March) 2023 trading update on Wednesday. The release showed a strong operating performance, with production running at 202kboepd, ahead of the Group’s unchanged FY guidance of 185-200k, although future periods are likely to see production disruption due to maintenance etc. The production split in Q1 was 50/50 liquids and gas. Estimated OpEx in Q1 was c.$15/boe, below unchanged FY guidance of c.$16. The period saw good progress on a number of UK infrastructure projects (both energy and CCS) and international momentum with the submission of the Zama development plan in Mexico; an oil discovery at Kan-1 (also Mexico) and prepartions for a “high impact” three well drilling campaign in H2 in Indonesia’s Andaman Sea. On the financials, HBR delivered revenues of $1.1bn in Q1, supported by realised oil and gas prices of $76/bbl and 71p/therm, below unhedged average prices of $81 and 133p. Capex spend was c.$0.2bn in the period, running below the unchanged FY guidance of $1.1bn due to timing. The Group will take a c.$15m one-off charge in respect of UK redundancies in 2023 which will deliver annual cost reductions of $50m from 2024 onwards. On the balance sheet, helped by strong free cash flow of $0.7bn (reflecting capex, dividend and tax payment timing, the Group continues to guide to FY free cash flow of $1.0bn), net debt has reduced to just $0.2bn at end-March from $0.8bn at end-2022. The Group continues to guide to being net debt free in 2024, unless further M&A / distributions are announced. A $100m (previously announced) dividend will be paid later this month. By 9 May the Group had executed a quarter of its current $200m share buyback programme, which has cut the share count by over 10% since the 2022 AGM. All-in-all, an in-line update from the Group. I recently doubled my position in HBR due to its very cheap valuation; attractive distribution qualities; relatively safe (by industry standards) resource profile; and strong balance sheet. Harbour Energy trades on just 4.8x consensus 2024 earnings and yields 8.6% according to Bloomberg data. In my view the risk/reward trade-off for this stock is very favourable.
HLN – GSK placing; EMTN programme
As discussed below, GSK placed 240m shares in Haleon last night, reducing its stake in the Group to c.10.3%. Further disposals are likely over time as neither GSK nor Pfizer, which holds 32% of shares in the Group, see themselves as long-term shareholders. The GSK placing is a welcome development, reducing (but not removing) the technical overhang represented by more than two-fifths of the register being in the hands of declared future sellers. I have said before that I wish to add to my HLN position, and will look to take advantage of technical weakness caused by large stake-selling to buy more of the company. Elsewhere, I note that Haleon has today published a base prospectus regarding its £10bn EMTN programme. This may hint at near-term bond issuance, which would not be a surprise if the Group is likely to wish to pre-fund USD denominated debt maturing in 2024 with a GBP equivalent value of £0.8bn and a further £1.5bn maturing in 2025. Bloomberg data have HLN trading on 17.5x 2024 earnings, a discount to other personal care players.
GSK – Haleon placing; Meningitis vaccine progress; Zantac litigation win
Last night GSK sold, through an accelerated bookbuild, 240m shares in Haleon at a price of 335p/share, raising gross proceeds of c.£804m. The price was a c.2% discount to the pre-placing price, but a touch ahead of the 330p/share IPO price. Following this sale, GSK will hold 955m shares in Haleon, equating to c.10.3% of the share capital. Both GSK and Pfizer have committed to no further share sales for a minimum of 60 days following settlement. Assuming settlement is on Monday, this means no further sales until 14 July, but I suspect that share sales won’t feature again this side of H1 results on 2 August. The monetisation of GSK’s stake in Haleon has been well flagged and sales of this type will further strengthen GSK’s liquidity position. Elsewhere, earlier today GSK announced that it has presented “pivotal data” at ESPID confirming the effectiveness of its 5-in-1 meningococcal ABCWY vaccine candidate, with “demonstrated coverage against a panel of 110 MenB strains”. Encouragingly, “preliminary results from phase III trial show all primary endpoints met, demonstrating statistical non-inferiority compared to Bexsero (meningococcal group B vaccine) and Menveo (meningococcal group A, C, W-135 and Y conjugate vaccine), in individuals 10-25 years old with an acceptable safety profile”. GSK adds that “if approved, this vaccine candidate could provide the broadest coverage against the most prevalent meningococcal serogroups and could lead to a simplified immunisation schedule”. This all sounds very encouraging. At the end of Q1 2023 GSK had a pipeline of 68 potential new vaccines and medicines across phase I, II, III/registration. Finally, this morning GSK noted its latest Zantac litigation win, this time in Canada, where the British Columbia Supreme Court dismissed a proposed class action on behalf of a class of ranitidine users. Similar to other cases, the Court stated: “Given the uncontroverted evidence that neither ranitidine nor NDMA are reliably associated with increased cancer risk, and the absence of evidence that ranitidine or NDMA cause cancer in humans, the plaintiff has failed to raise a bona fide triable issue regarding injury due to the ingestion and/or purchase of ranitidine”. Zantac litigation risk continues to reduce for GSK, although it will clearly remain an overhang until all of these cases have ended. Bloomberg data have GSK trading on just 9.6x 2024 earnings and yielding 4.1%. This stock is very good value, in my opinion.
RYA – Max order underpins growth plans
On Tuesday Ryanair announced that it has placed an order for 300 (150 firm and 150 options) Boeing 737-MAX-10 aircraft with a list price of $40bn (not that RYA is likely to pay anything approaching that amount). The order is nonetheless of such a scale that it will require shareholder approval (a formality, presumably) at the Group’s AGM to be held in September). As previously noted, the MAX has 228 seats, 21% more than the B737NG, and phased delivery of the new aircraft over 2027-33 will support the Group’s newly announced ambition to lift traffic by 80% from FY (March) 2023 (168m) to 300m p.a. by March 2034. Half of the new aircraft will replace older B737NGs. The MAX aircraft also have superior (20% better) fuel efficiency and (50% quieter) noise attributes relative to the B737NGs, important considerations on a number of different levels (ESG, OpEx, negotiations over landing rights etc.). Ryanair guides that the capex involved “will be substantially funded from internal cashflows”, whilst noting that it will remain opportunistic in respect of its fleet financing strategy. Annual passenger numbers of 300m represents c.30% of the European air travel market, which feels realistic for the structural low cost leader. Bloomberg consensus estimates have RYA trading on just 11.8x FY 2024 earnings, which seems very cheap to me given the growth trajectory.
RHM – Further contract wins
The steady stream of contract win news continues for Rheinmetall. This week Austria signed a framework agreement for up to 1,375 logistics vehicles with a potential order value of €525m running to 2029 with Rheinmetall MAN, a JV that is 51% owned by RHM and 49% by MAN Truck & Bus SE. Earlier today the Group announced that an unnamed European customer (presumably Ukraine) has awarded it a “mid-double-digit” million euro order to supply rounds for IFVs and MBTs. Delivery is to take place over 2023 and 2024, with RHM noting that this underscores its capacity to meet such demand at short notice. The Group also attended the DEFEA exhibition in Athens this week at which it presented its Lynx KF41 IFV, “a strong contender for the modernisation of the mechanised brigades” of Greece. Hungary is currently the only operator of the Lynx, taking its first deliveries (of an order of up to 209 vehicles) in 2022. Greece is seen as one of five key potential export markets for the Lynx, alongside Australia, Iraq, the US and Ukraine. Bloomberg consensus has RHM trading on just 14.4x FY 2024 earnings (and yielding 2.6%) which seems very cheap to me given the structural growth prospects for Western security investment.
PRX – PayU disposal report
Bloomberg reported on Wednesday that Prosus is considering potential divestments of PayU outside of India. While PayU operates across more than 50 countries, more than 60% of transactions processed come from its Indian market. Bloomberg suggests that PayU ex-India is worth up to $800m. Such an exit would represent quite the U-turn for Prosus, considering that it sought to merge PayU with Billdesk in a $4.7bn takeover last year in what would have created one of the world’s largest payments businesses. I previously noted that Prosus could look to exit assets other than Tencent, where a managed share sale process is underway, but I am surprised that the Group would consider selling off one of its largest assets in the current climate as opposed to (say) opportunistic sales of some of the smaller shareholdings. Prosus’ shares were trading at just €65 earlier today versus a spot NAV of €101/share.
Theodosian Capital 