Reckitt Benckiser Upgraded by Analysts

Reckitt Benckiser is repositioning itself in the market, choosing to focus on health and hygiene rather than just cleaning products - and has earned a fair value upgrade

Erin Lash, CFA 12 August, 2014 | 9:54AM
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Reckitt Benckiser (RB.) is repositioning itself as less of a household cleaning company and more as a health and hygiene products firm. This strategy makes sense, in our view, as over-the-counter health-care products lend themselves to greater brand loyalty, innovation, and higher margins. This increased emphasis will make Reckitt even more of a target for its much larger, stronger rivals. As a sharp operator with solid brands in some very niche categories – which is the basis for our narrow moat, we view Reckitt's commitment to investing behind product innovation as a plus, but competitors are not sitting idly by.

It will be essential for Reckitt to ensure its products win with consumers. Reckitt is also shifting its people and capital investments to align with markets experiencing greater absolute growth, which strikes us as prudent, although Europe and North America still constitute about 50% of sales.

Beyond its consumer business, which makes up 92% of sales and 84% of operating profits, Reckitt operates a pharmaceutical division, RBP. However, after a nine-month strategic review, the firm plans to spin off the operations, which we view favourably given the lack of synergies we see. Within RBP, Reckitt owns Suboxone, a drug used to treat opiate dependency, which lost patent protection in 2009. As such, Reckitt has shifted its offering to a lower-margin patented sublingual film, but prospects for the pharma business are quite weak, as evidenced by the 8% decline in first-half sales and a 380-basis-point deterioration in segment operating margins to 53%.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Reckitt Benckiser Group PLC6,164.00 GBP0.00Rating

About Author

Erin Lash, CFA  Erin Lash, CFA, is a senior stock analyst with Morningstar.