ii view: Reckitt Benckiser benefits after beating City forecasts

An array of major consumer brands, a dividend yield of 3% and a positive share price reaction to latest results. Buy, sell, or hold?

Full-year results to 31 December 2022

• Currency adjusted Like-for-Like (LFL) revenue up 7.6%
• Operating profit up 16.8% to £3.44 billion
• Final dividend of 110.3p per share
• Total full-year dividend up 5% to 183.2p per share
• Net debt down 5% to £7.98 billion

Guidance:

• Expects adjusted operating profit margins to be in line with or slightly above 2022 levels

Chief executive Nicandro Durante said:

"Reckitt delivered a year of strong growth in net revenue, earnings, and free cash flow conversion amidst a continued challenging environment. We are now 28% larger than we were in 2019. Our healthy balance sheet underpins our financial strength, and we are delighted to grow the dividend in 2022 with the aim to deliver sustainable dividend growth in future years.

“We have more to achieve and will continue to see macroeconomic and consumer pressures in the year ahead.  However, our financial, operational and brand strength position us well for the future.”

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ii round-up:

Hygiene, health and nutrition multinational Reckitt Benckiser Group (LSE:RKT) today detailed sales growth which beat City expectations as it continued to battle a tough economic backdrop.

Full-year net like-for-like sales rose 7.6%, just squeezing past analyst forecasts of 7.5%, helping push operating profit up 16.8% to £3.44 billion. Product price rises helped counter a 2.2% retreat in the overall volume of products sold compared to the prior year. 

Shares for the FTSE 100 firm rose by more than 2% in UK trading having come into this latest news virtually unchanged year-to-date. Shares for fellow consumer goods maker and owner of the Domestos brand Unilever (LSE:ULVR) are also little changed in 2023. The FTSE 100 index is up almost 5%.

Reckitt operates across the three divisions of hygiene, health, and nutrition, with brands including Dettol, Harpic, Lysol, Air Wick, Calgon, Clearasil, Gaviscon, Nurofen, Strepsils and Vanish.

Nutrition sales led the way in the fourth quarter, rising 19.4%, followed by Health-related sales up 6.7% and Hygiene up 1.3%.

Geographically, North American sales pushed 23% higher in the quarter, with Developing market sales up 14% and European and Australasia growing 5%.  

Net debt declined 5% to £7.98 billion, aiding a 5% increase in the total dividend for the year to 183.2p per share. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the numbers.

A first-quarter trading update is scheduled for 26 April.  

ii view:

Reckitt Benckiser came together in 1999 when Reckitt Coleman merged with Dutch concern Benckiser. Today, its biggest slug of sales come from Health at around 42%, closely followed by Hygiene at 41% and Nutrition the balance at 17%. It sells around 30 million products daily with its 22 power brands including Dettol, Finish, Durex, Nurofen, Vanish and Enfami. 

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For investors, rising interest rates and a cost-of-living crisis could see Reckitt’s customers trading down to cheaper brands such as those offered by the supermarkets. Costs for businesses broadly remain elevated, some supply chain challenges in the earlier part of the year suffered, while the impact on the environment from its hygiene products and broader packaging also warrants consideration.  

On the upside, diversity of both business type and geographical region is enjoyed. A rejigging of its product stable is also ongoing, management remains focused on controlling costs, there's further investment in product innovation, while a historic and forecast dividend yield of around 3% is not to be overlooked. 

For now, and with the consensus analyst consensus estimate of fair value standing at over £68 per share, this giant of the consumer health and hygiene world looks to remain deserving of its place in many diversified investor portfolios. 

Positives: 

• Diversity of product type and geographical location
• Array of strong brands

Negatives:

• Uncertain economic outlook
• Many supermarket own brands now compete

The average rating of stock market analysts:

Buy