FTSE 100 firm Reckitt (LSE: RKT) is split into three divisions: health (where key names include Clearasil, Dettol, Durex, Gaviscon, Nurofen and Strepsils); hygiene (Air Wick, Finish, Harpic and Vanish); and nutrition (infant formula brands Enfamil and Nutramigen). The products are leaders in their field and available in 200 countries.
It is difficult to find a company more defensively positioned – more immune to the economic cycle, in other words – anywhere.
Between March 1999 and mid-2017, Reckitt gave shareholders a stunning 12-fold return, even excluding dividends.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Reckitt’s patchy profits
Why, then, have Reckitt shares tumbled by almost 30% since that June 2017 peak? After all, net revenue growth over the five years to the end of December 2021 averaged 8% a year.
One big fly in the ointment has been the company’s very patchy profits performance. The group’s headline earnings per share (EPS) figures have been all over the place.
Investors are also concerned about competitive pressures as retailers’ own brand products edge in on its market shares.
What’s more, the firm has made several self-inflated errors in recent years.
In 2019, for example, CEO Laxman Narasimhan acknowledged “several areas where we’ve underinvested and overstretched people and assets. At the top line, we’ve had real issues delivering growth, particularly in health”, which “faltered [and] became large, unwieldy and unfocused. We missed important innovations [and] some pricing decisions backfired.”
Investors have moved away from Reckitt shares
So, where does this leave the business now?
Reckitt has just announced third-quarter figures. Group like-for-like (LFL) sales grew by 7.4%, with price rises partly offset by a 4.6% dip in sales volumes.
Despite the challenging global economic climate, Reckitt is pushing ahead.
Interim CEO Nicandro Durante said, “My priority is firmly focused on continuing to… deliver sustainable mid-single digit growth, and mid-20s adjusted operating margins by the mid-2020s.”
As the company gets its act together, Reckitt shares are becoming more appealing.
According to City analysts, the stock is trading at a forward price/earnings (p/e) multiple of 18 for 2022, falling to 16.4 next year. That looks quite cheap for a high-quality growth stock with a portfolio of valuable consumer goods brands.
What’s more, the group has maintained its dividend since 2019. If this pay-out is held steady this year, the prospective yield would be 3%.
For UK investors the firm also has appeal as an international champion. Just 6% of last year’s sales came from the UK, which means its earnings are insulated from sterling volatility. In fact, if the pound continues to depreciate Reckitt’s bottom line would receive a boost.
Reckitt shares are much cheaper today than they were in 2017, and for the past couple of years, the company has deserved a low valuation. But now the firm is getting its house in order, the stock could soon start to regain its former valuation – which in turn would spark a major price rebound.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
Best investing appsLooking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go? We round up the best investing apps
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
