Back in July I loved up the health and hygiene giant Reckitt Benckiser (RB.) and noted 'my target remains over £80 a share'. Well - let's face it - it was not too difficult to be optimistic about a company during the time of a huge healthcare concern whose brands include Dettol, Vanish, Air Wick and Harpic...even before you consider Finish, Durex, Gaviscon and Strepsils. You get the gist: Reckitt is a consumer staples giant well-attuned to today's backdrop. And you can see this in its third quarter update...
For a company of Reckitt's size (a mere £52 billion market cap), it is far from shabby to see group like-for-like sales of +13.3%, actually stronger than the year-to-date equivalent of +12.4%. And it is not just consumer panic purchasing. Reckitt noted market share gains and innovation advances including the wonderful juxtaposition of the 'first polyurethane Durex launched in China...(whilst) Mucinex, Enfamil, Lysol and Air Wick recognised as four of the top 25 US innovations'. There was also the confirmation not just that its £1.3 billion productivity programme was on track but that with YTD savings of £300 million so far, it was 'ahead of plan'.
So super growth, innovative product and productivity improvements. Throw it all together and it is not a surprise to see guidance being updated: '2020 like-for-like net revenue now expected to grow 'low double digits' (previously 'high single digit')', although as the Q3 update was just sales focused, the company was a bit coy on profit and cash flow hopes ('no change'). Suffice to say the risk is to the upside on these metrics, at least until the lapping of tough comparisons start next year.
And that is why my £80+ target price is not ludicrously above the current share price. Nevertheless, a double-digit percentage price capital gain potential plus a c. 2.5% dividend yield plus - as noted at the above link - the opportunity for the company to consider options to separately list the health and hygiene components of the business. This along with the ongoing efforts to boost corporate margins aided by the aforementioned productivity plan is the other component of the medium-term bull story. If you have to buy a large consumer staple name on the London market, then you should much prefer this one to (say) Unilever (ULVR). In my view, more options than just being a Covid-19 beneficiary.
Filed under: Reckitt Benckiser, podcast, Centamin, D4T4 Solutions, TomWinnifrith.com, Metro Bank
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