Back in October HERE I wrote positively about the health and hygiene giant Reckitt Benckiser (RB.), noting that an £80+ share price target was not crazy. Back then the shares were just over £70 each but today they are about sixty quid. So what has gone on and has the story changed or not?
Unsurprisingly the challenges of Covid-19 have meant a few issues even for a company with a health and hygiene focus. Yes, sales were up nearly 9% but operating profit was a touch down for 2020 as costs - and investment levels - went up. That is far from a disaster though, especially given its choice to help out some countries face up to Covid.
Reckitt Benckiser, however, remains a story where Covid-19 changes do help. It found across its range of international markets that 85% of hygiene habits improved and that experience so far (citing countries such as China and Australia) that even post-pandemic it has seen 79% of regular customers keep their spending above 2019 levels. And the brands that got a really strong mention were Dettol (antiseptic disinfectant that kills bacteria), Lysol (No.1 disinfectant brand in the US)...and Durex (‘Take your sex life to another level’) where apparently demand has been very strong especially in the emerging markets. In China - for example - sales were up 17% with the line ‘gives the confidence to enjoy sex more!!' All good fun for some certainly, but more generally there was good progress in contributing in a bunch of areas, a theme I anticipate is likely to continue to do well.
And it is based sensibly geographically too with the top ten markets not just the US, UK and Australia but also the likely future leads in China, India, Turkey, Mexico, Nigeria and others. Reflecting some need for evolution I note that the Dr Scholl’s (foot care) brand is to be sold, whilst a new brand called Biofreeze (‘long lasting and fast acting cold therapy pain relief for sore muscles, back aches, sore joints’) has been bought. Hello a focus on the 2020s and not a decade or generation before. Cash flow was very strong at over £3 billionn (compared to £2.1 billion in 2019) and it sounds as if there will be a number a bit lower than this in 2021. I still would expect over a 5% free cash flow yield though which is far from shabby. Yes, the dividend was only maintained but the yield is still equivalent to over 2.5% and debt went down sharply to £9 billion (equivalent to a 2.4x ND:EBITDA multiple). For me a stock such as Reckitt Benckiser with a x14s EV:EBIT multiple and that aforementioned free cash flow level is a bit cheaper than names such as Unilever (ULVR). So I am a buyer with a target much closer to £80 again...even if my life is so much more boring than a bunch of its Chinese customers has been in recent months!
Filed under: Reckitt Benckiser, Tom Winnifrith Video Shareshow, Trakm8, GB Group, Buy 2 Let Cars Limited
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