EUR 4351.14 For Business Accounts Only

2018 EPS Forecasts at Risk

Currency, Advair generics, a slowing base business
and a tough comp for Vaccines all mean that we
believe 2018 consensus EPS estimates are 2-6% too
high. We calculate the impact of an early or late
Advair launch and the negative impact of recent GBP
strength. We show the dividend looks increasingly
precarious and are 11% below 2022 consensus EPS.

Consensus EPS Looks 2-6% too High – We show that
consensus 2018 EPS estimates may need to fall due to sterling
strengthening and the impact of Advair. We show that the
base business growth should drive 3-4% EPS growth but Advair
generics and a 6-7% currency headwind will reduce earnings.

Advair Generics Impact – Using the 2017 guidance for Advair,
we show an April 1st Advair generic launch leads to a ~7% EPS
decline and a July 1st launch would lead to a 5% decline in
2018 EPS. We believe 2018 guidance will be of a similar
format to 2017, providing a range of Advair based outcomes.

Vaccines to Face Tough Comp in 2018 – GSK’s Vaccines
business had a strong 2017 due to CDC stockpiling, a strong
flu perfromance and Infanrix benefitting from Sanofi’s supply
outage. However, Sanofi are back on stream, the stockpiling
won’t repeat and the flu performance is uncertain. In
addition, Shingrix launch costs will make for a tough 2018.

Dividend Increasingly at Risk – As earnings continue to
deteriorate and Sterling weakness reverses, the dividend is
looking increasingly stretched. We show that GSK’s dividend
cover targets are far from being met in the next 5 years.

We Remain Below Consensus – We are 2% below consensus
EPS in 2018 (we assume the best-case scenario on Advair) and
11% below consensus EPS in 2021. We retain our Reduce
recommendation. Our SOTP valuation is £12.50 but at
£13.00, the current 6% dividend yield is likely to provide
share price support