The Share Centre - Keep taking the GlaxoSmithKline medication

As GSK announces an increase in turnover, but a decrease in profits for Q2, Graham Spooner, The Share Centre's investment adviser, explains why GSK is still a core holding.

"Despite the news of a fall in profits in Q2 for GSK, it was encouraging to see a rise in turnover in the same period.  Sales in the three months to 30 June 2010 were up to £7.025bn from £6.747bn over the same period last year, whilst pre-tax profits totaled £494m, compared with £2.25bn the previous year.

"This was due to the continued strong sales of new products, the flu vaccine and further expansion in to emerging markets which was then offset by generic competition and a legal charge (to meet litigation costs).

"GSK took a charge of £1.57bn in this quarter to cover costs of settling legal disputes involving the anti-depressant Paxil, its diabetes drug Avandia and US government investigation of a factory in Puerto Rica.

"It is also important to note that since Andrew Witty, CEO, took office in April 2008, the company has been through a period of restructuring and cost cutting. 

"The group has a number of potential new drugs and vaccines in development and with such a robust pipeline, plus the focus on emerging markets, we believe GSK is still an attractive company within its sector.

"We feel that GSK should be a core holding in a portfolio; the growth is stable and there is also an impressive dividend to be had - it has been increased from 14p to 15p today.  GSK also has a good cash flow and has reduced its debt."