GSK PLC — Investment research note

Executive summary

GSK is a global biopharma company focused on vaccines, HIV, oncology and respiratory/immunology & inflammation (RI&I), plus a large legacy General Medicines franchise. Across 2020-2025 GSK re-based the business (Consumer Healthcare demerged as Haleon in July 2022), settled the Zantac litigation overhang (~£1.8bn / $2.3bn charge in 2024) and delivered accelerating Specialty Medicines growth (+17% CER in 2025) while restoring double-digit Core operating profit growth 2026-02 FY 2025 results, 2025-02 FY 2024 results. For valuation today, the most important point is that GSK is executing well on a broad late-stage pipeline (Blenrep, Nucala COPD, bepirovirsen, camlipixant, ADCs) and has just spent ~£15bn on M&A (Nuvalent, RAPT, 35Pharma, IDRx, efimosfermin) to shore up growth into the dolutegravir loss-of-exclusivity (LoE) window in 2028-2030 2026-07 Nuvalent completion, 2026-03 RAPT completion, 2026-04 35Pharma completion.

Fair value estimate

• Fair value range: 1,850p – 2,250p per share, implying a market cap of ~£74,200m – £90,200m.
• Methodology: forward P/E on Core EPS. 2025 Core EPS 172.0p; 2026 guidance +7–9% CER implies ~184–187p, mid-point ~185p 2026-02 FY 2025 results. Apply a 10–12x forward P/E (in line with large-cap Western pharma trading at a discount to nominal growers on LoE risk) → 1,850p–2,220p. A DDM cross-check on the 66p 2025 / 70p 2026 dividend, growing 3-4% into perpetuity at 8% cost of equity, gives ~1,750–2,000p. Sum-of-parts on a 2031 sales outlook of >£40bn, 30%+ Core operating margin and 4bn shares also lands in a similar range on 12x mid-cycle EPS.
• vs. current market cap £76,767m the stock sits roughly at the lower end of my range. Absolute upside to the mid-point (2,050p) is roughly +7%; downside to the low end (1,850p) is about -3%. Verdict: fair value.

Sector context

• Sector: Health Care (ICB) — confirmed. Big pharma, non-cyclical.
• Quality/growth/leverage vs peers: In line to slightly below typical Big Pharma peers. Growth trajectory (~6-8% Core operating profit CAGR) is respectable but not best-in-class; margin (Core operating margin 29.9% in 2025) is below AZN/Novo/LLY/Merck peers; leverage at 1.3x Net debt / Core EBITDA is comfortable 2026-02 FY 2025 results.
• Listed peers: AstraZeneca (AZN LN), Sanofi (SAN FP), Roche (ROG SW), Merck & Co. (MRK), Bristol-Myers Squibb (BMY).

Investment thesis (3 bullets)

1. Specialty Medicines are now the growth engine and diversify away from HIV/dolutegravir LoE risk. Specialty Medicines grew +17% CER to £13.5bn in 2025, with RI&I +18%, Oncology +43% (Jemperli +89%, Ojjaara +60%), and HIV +11% 2026-02 FY 2025 results. The 2031 outlook was raised to >£40bn sales 2025-02 FY 2024 results.
2. Late-stage pipeline optionality is meaningfully derisked. In 2025 GSK delivered five major FDA approvals (Blenrep, Exdensur, Nucala COPD, Penmenvy, Blujepa) plus positive Phase III data on bepirovirsen (hepatitis B), with ~10 pivotal readouts and starts expected in 2026 2026-02 FY 2025 results. The Nuvalent deal adds two potential best-in-class NSCLC assets (zidesamtinib, neladalkib) with 2026 launch potential and multi-blockbuster peak sales guidance 2026-07 Nuvalent completion.
3. Defensive cash generation supports a re-rating and shareholder returns. 2025 Free cash flow £4.0bn, +41% YoY; £2bn buyback programme largely executed; dividend raised to 66p in 2025 with 70p guided for 2026; Net debt/Core EBITDA held at 1.3x despite £15bn of announced M&A 2026-02 FY 2025 results, 2026-03 RAPT completion.

Key risks (3 bullets)

1. Dolutegravir LoE cliff 2028–2030. HIV was £7.7bn / 24% of Group sales in 2025 with 55% growth contribution from Cabenuva; the majority of dolutegravir LoE impact is expected 2029–2030, and management's "broadly stable margin through LoE" is a load-bearing assumption 2025-02 FY 2024 results, 2026-02 FY 2025 results.
2. US pricing / tariff / IRA overhang. The December 2025 agreement with the US Administration excludes GSK from s232 tariffs for three years but detailed terms are confidential; IRA Medicare Part D redesign is already a visible drag on Nucala, Trelegy and Zejula US pricing 2026-02 FY 2025 results.
3. Execution risk on aggressive M&A / pipeline conversion. ~£15bn of M&A in 2025-26 (Nuvalent alone ~£8bn) is being funded partly from balance sheet, with peak sales dependent on FDA decisions in H2 2026 for zidesamtinib and neladalkib; disappointing Phase III readouts on camlipixant or bepirovirsen would materially undermine the >£40bn 2031 outlook 2026-07 Nuvalent completion; 2026-02 FY 2025 results.

Operating leverage

GSK has moderate but not extreme operating leverage. Gross margin (Core) is ~75% (Cost of sales 25.1% of sales in 2025), reflecting the typical branded-pharma model, and 2025 delivered gross-margin expansion on Specialty Medicines mix. Below the gross line, R&D (£6.6bn Core, 20% of sales) and SG&A (£9.0bn Core, 27.5% of sales) are largely fixed in the short-medium term — 2026 guidance explicitly targets SG&A growth "at a low single-digit per cent" against sales growth of 3-5%, giving ~2 percentage points of margin leverage 2026-02 FY 2025 results. A 10-20% revenue upside surprise (roughly £3-7bn of extra sales) would drop through at 60-75% incremental margin given the fixed R&D/SG&A base, potentially adding 20-40% to Core operating profit — meaningful, but not the 2-3x multiplier a specialised software business or capacity-constrained industrial would deliver. Vaccines is where operating leverage is most visible: Shingrix, Arexvy and Penmenvy come off large fixed manufacturing/marketing investments, and incremental doses drop through at very high margins.

Value-trap signals

• Dolutegravir LoE 2028-2030 is the single most important structural risk; management is explicit about "broadly stable operating margin through" the LoE window, but any weakness in Specialty/Vaccines conversion would leave a hole.
• Persistent CCL/Adjusting item volatility — 2025 Total EPS 141.1p vs Core 172.0p; large non-cash charges from Shionogi/ViiV contingent consideration and impairments (£471m belrestotug write-off in 2025) obscure clean earnings 2026-02 FY 2025 results.
• Zantac litigation not fully closed — 13 state cases remain and Federal MDL appeal outcome pending H1 2026 2026-02 FY 2025 results.
• Buyback + rising net debt + M&A appetite means less balance sheet flexibility going into the LoE window.

Earnings vs. expectations

Across FY 2021–2025, GSK has consistently met or beaten its own guidance and raised long-term outlooks: 2023 delivered +14% Adjusted EPS growth CER (vs +12-15% guide), 2024 delivered Core EPS +10% CER (vs +7-9% guide) and 2025 delivered Core EPS +12% CER (vs +8-10% initial guide, subsequently raised), while the 2031 sales outlook has been serially upgraded from £33bn (2021) to >£38bn (2024) to >£40bn (2025) 2025-02 FY 2024 results, 2026-02 FY 2025 results. The pattern is one of consistent, if modest, beats vs company guidance and an increasingly credible pipeline story.

Conviction

Conviction: 4 (high). Anchors: (a) clean, well-disclosed IFRS + Core framework with a five-year track record of guidance/outperformance; (b) multiple valuation approaches (forward P/E, DDM, sum-of-parts) converge in a 1,800-2,300p range; (c) 2026 and 2031 outlooks are backed by specific pipeline milestones with disclosed readout dates. Limits: (a) the fair value hinges materially on the assumption of margin stability through dolutegravir LoE, which is unproven; (b) £15bn of very recent M&A (Nuvalent, RAPT, 35Pharma) has not yet been tested in the market — peak sales estimates are management's, not reality.

Driver scoring

ai_beneficiary 25 — GSK uses AI in AMR discovery (Fleming Initiative, END2AMR) and drug discovery workflows, but is fundamentally an AI spender, not an AI receiver. No AI-driven revenue line; the AI-in-pharma platforms tier belongs to companies like Recursion/Schrödinger, not integrated Big Pharma.

operating_leverage 50 — High gross margins and largely fixed R&D/SG&A give modest leverage (2026 guide is +7-9% Core operating profit on +3-5% revenue), but not the 2-3x incremental profit multiple of software or capacity-constrained plays.

earnings_surprise_trend 65 — Consistent modest beats vs company guidance across 2023-2025; multiple outlook upgrades. Not a serial 20%-beat name but reliably delivers.

cyclicality 12 — Deeply defensive: vaccines, HIV, RI&I, oncology. Demand is largely disease-driven.

moat 68 — Wide moat via patents (dolutegravir, Shingrix, Trelegy, Arexvy) and manufacturing scale in adjuvanted vaccines. Weakness: patent cliffs are visible on the horizon (dolutegravir 2028-2030) and Blenrep/Zejula/Jemperli face intense competition.

leverage 35 — Net debt £14.5bn, Net debt/Core EBITDA 1.3x in 2025 — comfortable investment-grade. Rising with M&A but well within capacity.

earnings_quality 60 — Core vs Total EPS gap is meaningful (172p vs 141p in 2025) due to CCL remeasurements and impairments; cash generation is strong (£4.0bn FCF); Zantac now largely resolved but still a residual overhang.

management_quality 65 — CEO handover from Emma Walmsley to Luke Miels executed smoothly; delivered Consumer Healthcare demerger; disciplined but sizeable M&A programme; candid disclosure; capital returns balanced with reinvestment.

growth_momentum 58 — Mid-single-digit sales growth accelerating on Specialty Medicines mix; 2031 outlook rising; but total growth capped by General Medicines decline and Vaccines lumpiness.

Overall score: 380 / 1000

GSK is a well-run, fair-value large-cap pharma with a solid moat and durable cash generation — but it is a poor fit for this specific portfolio strategy. It has minimal direct AI-receiver exposure, only moderate operating leverage, valuation is roughly fair rather than cheap, and the biggest identifiable idiosyncratic risk (dolutegravir LoE 2028-2030) is real. It scores as a "partial fit — worth knowing about, not a focus name."

Thesis one-liner: GSK is executing well on a diversifying Specialty Medicines and Vaccines pipeline, with credible >£40bn 2031 sales visibility, but the stock is roughly fair value on 10-12x forward Core EPS and offers limited AI/operating-leverage upside.

Biggest risk one-liner: Dolutegravir loss of exclusivity in 2028-2030 removes ~24% of Group sales and the Specialty/Vaccines pipeline must fully offset it for the 2031 outlook to hold.