Haleon's Capital Structure Overhaul: A Strategic Play for Undervalued Equity Gains

Haleon PLC (HLN), the global consumer health giant, is embarking on a pivotal restructuring of its capital structure and operational reporting, aiming to unlock shareholder value ahead of its H1 2025 results. By sharpening its financial focus through category reorganization and aggressive share buybacks, the company is positioning itself to capitalize on underappreciated growth opportunities. For investors, this presents a compelling case to reassess Haleon's valuation and potential upside.

The Capital Structure Revamp: A Dual-Pronged Approach

Haleon's strategy hinges on two critical moves: category reorganization and equity buybacks. Effective July 31, 2025, the company will report six distinct categories—Oral Health, VMS, Pain Relief, Respiratory Health, Digestive Health, and Therapeutic Skin Health—replacing its prior structure. This shift aims to clarify financial performance by isolating high-growth segments (e.g., Oral Health, up 9.6% organically in 2024) from underperforming ones (e.g., Respiratory Health, down 5.4% in reported terms).

The buyback program has been equally aggressive. By June 2025, Haleon had repurchased 1.68 million shares, reducing its outstanding capital to 9.0 billion shares and boosting per-share metrics. This reflects a broader goal to optimize capital allocation, with £800 million in productivity savings targeted from 2026 onward—funded by supply chain efficiencies.

Q2 2025: A Litmus Test for Restructuring Success

Haleon's upcoming H1 results will be the first to reflect its new reporting framework. Analysts will scrutinize two key metrics:
1. Organic Revenue Growth: Haleon aims for 4–6% growth, but reported figures may lag due to currency headwinds. Strong performance in Oral Health and VMS could offset declines in Respiratory Health.
2. Margin Expansion: The £800 million productivity target should begin materializing in 2026, but interim savings from reduced working capital (targeted at a 30% reduction) may already support margins.

Valuation: A Case for Undervalued Equity

Haleon's current market cap of £34.3 billion (approx. $48.7 billion) reflects skepticism around its ability to sustain growth amid macroeconomic challenges. However, three factors suggest it is undervalued:
1. Buyback Impact: Reducing shares by ~0.2% in 2025 alone could amplify EPS gains as profitability improves.
2. Brand Portfolio Strength: Its portfolio includes 12 brands with over £100 million in annual sales, operating in categories with low elasticity (e.g., pain relief, vitamins).
3. Long-Term Targets: Haleon's goal to reach one billion more consumers by 2030 aligns with secular trends in self-care, particularly in emerging markets.

Risks and Considerations

• Currency Headwinds: A strong pound could continue to drag on reported revenue.
• Category Imbalances: Weakness in Respiratory Health and Therapeutic Skin Health may persist if Smokers Health (now reclassified) fails to gain traction in Respiratory.
• Supply Chain Execution: The productivity savings rely on timely implementation of cost-cutting measures.

Investment Thesis: Buy on Weakness, Target $15 by YE 2025

Haleon's stock has underperformed peers in 2025, trading at a 14.2x EV/EBITDA multiple versus the sector average of 16.5x. This presents an entry point for investors willing to look past near-term noise. Key catalysts include:
- Positive H1 Results: Strong Oral Health and VMS performance could surprise the market.
- Share Buyback Continuation: Haleon's authorization allows up to 913 million shares to be repurchased, signaling management confidence.

Conclusion: A Strategic Gem in the Healthcare Sector

Haleon's restructuring is a bold move to align its capital structure with growth drivers and improve transparency. While near-term hurdles remain, the combination of brand strength, disciplined capital allocation, and long-term targets suggests the equity is undervalued. Investors with a 12–18 month horizon should consider accumulating Haleon ahead of its H1 results, targeting a price of $15 per share by year-end—a 15% upside from current levels. The buyback program and category clarity could finally tip the scales in favor of this overlooked healthcare leader.

Word of Caution: Monitor Respiratory Health's performance post-reclassification and the impact of currency fluctuations on reported figures.