Stock Stories brings you closer to the heart of our investment strategy. In these short videos, our investment team discuss interesting stocks and how they contribute to our objectives of delivering a high and rising income together with capital growth for our shareholders by investing in a diversified portfolio of well-established UK-listed companies.
In this short episode of ‘Stock Stories’, Product Specialist Stephanie Sutton discusses an investment decision that was made and is illustrative of the Trust’s strategy: GSK. Stephanie shares her thoughts on how it aligns with the Trust's objectives of seeking to deliver a high and rising income together with capital growth.
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I'm Stephanie Sutton, Product Specialist for The Merchants Trust. All investments come with risk and when looking at potential investments in equities, it's important to think about risk. For Merchants, we seek to mitigate some of this risk by focusing on good companies with strong balance sheets, and the potential to pay attractive dividends, and also making sure we don't pay too much for them.
Biopharmaceutical giant, GSK has characteristics that we like in our portfolio companies. We believe that it has leading market positions and strong cash flow generation. These cash flows are not necessarily economically sensitive, people will always need drugs and medical innovation to lead longer, healthier lives.
Today, infectious diseases are still responsible for 1 in 7 deaths globally. GSK has a broad portfolio of medicines and vaccines for infectious diseases including HIV, it accounts for two-thirds of its research and development pipeline.
Vaccines are a great business to be in because they don't go off patent like other drugs, meaning that they can't get produced by others and sold as generic products at a cheaper price. It can also take many years to obtain vaccine approval, and incumbent leaders are very difficult to dislodge.
Of course, some of GSK's drugs are subject to patents. Patent expiries and liability risk may have made investors nervous. One of the company's very successful HIV drugs will go off patent in 2028 but the management team has been successful in adding new products to rebuild its portfolio of HIV drugs. We believe the market has overstated the risks and under appreciated the potential of the company that has been undergoing significant transformation following the spinoff of the consumer health business, Haleon, to focus on vaccines and pharmaceuticals.
GSK has been part of our portfolio for many years. The shares have performed reasonably well over the past year, but they remain modestly valued. We are not making any recommendation to buy GSK shares, but we believe it is well positioned for the future. It's a combination of value, quality and income that underpins The Merchant Trust's record of delivering dividend growth - something we have done every year for more than 40 years, as well as delivering long term total return for our shareholders.
Disclaimers: Securities mentioned in this document are for illustrative purposes only and do not constitute a recommendation or solicitation to buy or sell any particular security. These securities will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date. Past performance does not predict future returns.