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
Facebook Twitter LinkedIn

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%.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Reckitt Benckiser Group PLC5,700.00 GBX-8.43Rating

About Author

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

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement