GlaxoSmithKline: Strong start to the year, including favourable phasingBUY, Fair Value 1700p vs. 1670p (+17%)
At mid session yesterday, GSK reported first-quarter earnings that were comfortably above estimates with both top-line and margins healthier than expected. The two majors beats at the revenue level stemmed from an under-estimated full-quarter consolidation impact from Novartis' CHC business and from favourable phasing in vaccine shipments and tenders. Together with seasonality and some positive mix effects, these two elements also boosted Q1 margins to a level that will not be sustainable over the year. In all, we would say that while Q1 earnings were pleasant and support our investment thesis, they have less of an impact on FY numbers than thought hence a modest FV move.
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