Reckitt Benckiser - a leader in consumer brands - has enjoyed years of strong profit growth. But are the good times over for now? Phil Oakley investigates.
Reckitt Benckiser (RB) is one of the world's leading manufacturers of household cleaning and personal care products. It concentrates on the following areas: fabric care (Vanish, Calgon); surface care (Cillit Bang, Dettol); dishwashing (Finish); homecare (Airwick); health and personal care (Nurofen, Veet, Strepsils, Gaviscon, Durex); food (French's mustard); and pharmaceuticals (Suboxone). It sells its products in more than 180 countries and had sales of £8.5bn in 2010.
What is its history?
In 1840, Isaac Reckitt began renting a starch mill in Hull. Reckitt gradually expanded abroad and diversified into other household products, but it was during the 1930s, with the purchase of Harpic toilet cleaners, the launch of Dettol and a merger with JJ Colman, that the company was transformed. New products and acquisitions saw Reckitt & Colman become a leading household product provider.
In 1999, it merged with Benckiser, a German chemicals business. During the last decade, Reckitt Benckiser has targeted emerging markets and invested in Nurofen, Strepsils, Durex and Scholl. The company's rapid profit growth since 2000 has rewarded investors handsomely, but growth rates have slowed lately, while competition has increased.
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Rakesh Kapoor, who joined the company in 1987, has been chief executive since September 2011. Kapoor may sympathise with Tesco chief executive Philip Clarke's predicament, as both men inherited their roles from successful predecessors just as trading conditions became more challenging. Liz Doherty is chief financial officer and Adrian Bellamy is chairman.
How's trading?
In the three months to 30 September 2011 revenues rose by 16% to £2.44bn, while operating profits grew by 14% to £645m. Earnings per share (EPS) rose by 9% to 63.9p. The healthcare and pharmaceutical businesses performed well, but fabric care sales fell as prices were cut due to rising competition.
What's the outlook?
While Reckitt Benckiser expects to meet its 2011 targets, future growth looks uncertain as developed markets are maturing. More worryingly, Suboxone its treatment for opiate dependency accounts for around 20% of group profits, which could decline by 80% should generic competition arrive. This raises the risk of the firm overpaying for acquisitions in search of growth. Some city analysts suggest it may be a takeover target for Procter & Gamble or Colgate Palmolive, but competition concerns may prevent this from happening.
The analysts
Of the 31 analysts surveyed by Bloomberg, 15 say "buy", seven "hold" and nine "sell". The average price target is 3,446p 4% above the current share price. Most bullish is Deutsche Bank, with a 4,100p price target, while Royal Bank of Scotland is most bearish with a 2,800p target.
Despite an enviable portfolio of leading consumer brands, the company faces many challenges. Years of strong profit growth may be a thing of the past and better value found elsewhere. Avoid.
Directors' dealings
Deputy chairman Peter Harf sold £23m worth of shares in November, which raised a few eyebrows, given he is chief executive of Joh A Benckiser, which has a 15% ownership stake in Reckitt Benckiser. Finance director Liz Doherty bought 7,000 shares for £230,000 in October. Recent share activity can be seen in the chart on the left; the main directors' shareholdings are shown in the table on the right.
Director and shares held
A Bellamy: 20,955
L Doherty:7,000
R Kapoor: 244,875
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