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Questor: we’ve made an 11pc loss on GlaxoSmithKline. Here’s why we’re sticking with it

One of the most difficult aspects of investing is deciding what to do with loss-making positions. No investor is immune from them, since it is impossible to have a 100pc record. However, there is no hard-and-fast rule as to when savers should stick with their portfolio’s poor performers. In Questor’s view, the decision is best approached on a case-by-case basis. A stock that has fallen in price but whose investment rationale remains intact is worth holding. There may even be an argument for adding to the position at a lower price. This takes us to today’s stock: GlaxoSmithKline. The FTSE 100 healthcare business was tipped by this column in January 2019 but its shares have fallen by 10.6pc since then. However, many of the reasons for our original recommendation still apply. Notably, the firm is on track to separate into two entities next year. One part will be a consumer healthcare business that offers strong yet stable growth prospects. Its potential was highlighted by the 14pc rise in revenue posted by GSK’s consumer arm in the 2020 financial year. The other business after separation will be a drugs maker. GSK’s performance in this sphere has disappointed for many years. However, a sharper focus after the demerger should allow it to develop a greater number of blockbuster treatments. Indeed, it plans to launch more than 20 new products by 2026. More than half of them are expected to have potential peak revenues of more than $1bn (£730m) a year. The separation programme remains on track to deliver its targeted £700m annual cost savings by 2022 and £800m by 2023. The firm expects to reinvest a portion of these savings to improve its competitive position. Meanwhile, the company is making progress in reducing its borrowings. It was able to cut net debt by 18pc in the 2020 financial year, partly as a result of asset disposals. The result was that net interest costs were covered more than nine times by annual operating profits, as opposed to six times at the time of our original tip.
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