We maintain ‘reduce’ rating on GSK Consumer Healthcare and target price of R4,097 per share. We value the core operating business at 25x one-year forward EPS of R146.4, which gives a value of R3,660. As at the end of FY14, the company had cash of R18.4 billion, which works out to R437 per share.
GSK Consumer reported Q2FY15 results which were below our and street expectations. While sales were 1.3% below our estimates, PAT was 3.1% below our and 2.1% below street estimates. Net sales increased 10.6% to R1075 crore against our expectation of R1089 crore and street expectations of R10.98 crore. Ebitda came in at R196 crore versus our estimate of R216 crore and the street at R197 crore.
Consolidated gross margin declined 155 bps to 62.9% versus our estimate of 50 bps y-o-y improvement. Ebitda margin came in at 18.2%, down 155 bps y-o-y. We were expecting ebitda margins at 19.8% (flat y-o-y) and the street was at 17.9%. PAT came in at R160 crore against our expectation of R165 croren and the street at R1.64 crore. The key saving grace was higher-than-expected non-operating other income.
Volume growth continues to remain soft and below the long-term average. We estimate that for the quarter volume growth has continued to remain in the low single digit range versus long-term average of 11%. Margins also continue to be under pressure both at the gross and ebitda level which is another negative.