Interactive Investor

ii view: Reckitt Benckiser confident it can beat rising costs

From pain relief to dishwasher tablets, its array of brands is vast. We assess prospects.

17th February 2022 11:00

Keith Bowman from interactive investor

From pain relief to dishwasher tablets, its array of brands is vast. We assess prospects.

Full-year results to 31 December 2021

  • Net revenue down 5.4% to £13.23 billion
  • Operating loss of £804 million, down from a profit of £2.16 billion the year before
  • Net debt down 6.4% to £8.38 billion 
  • Final dividend unchanged at 101.6p per share

Guidance:

  • Expects full-year 2022 like-for-like net revenue growth of between 1% to 4%
  • Targeting growth in adjusted operating margins in 2022, from our base of 22.9%

Chief executive Laxman Narasimhan said:

"Our journey to rejuvenate sustainable growth is well on track. Over the last two years, we've significantly strengthened our business. Our innovation pipeline is 50% larger, our brands are stronger and more relevant, and our ability to serve our customers and consumers is greatly improved. 

“We have a unique portfolio of trusted, market-leading brands in structurally attractive categories with significant headroom for growth. This, combined with our progress to date, gives me the confidence in both our near term and medium-term prospects."

ii round-up:

Hygiene, health and nutrition company Reckitt Benckiser (LSE:RKT) today reported a full-year operating loss for 2021 of £804 million made as a result of selling its Chinese infant formula business. 

But the owner of brands including Dettol and Strepsils expects like-for-like net revenue growth of up to 4% over 2022, with expansion in its operating profit margin expected despite significant commodity inflationary pressures.

Reckitt Benckiser shares rose by more than 4% in UK trading to leave them down by under 5% over the last year. Shares for Domestos maker and fellow beneficiary of increased sanitising during the pandemic, Unilever (LSE:ULVR), are also down by a similar amount over that time. The FTSE 100 Index is up by over 12%. 

Under a transformation plan, Reckitt continues a journey to recapture former growth rates. Brands less sensitive to the clear pandemic boost, representing around 70% of its product portfolio, grew on average by mid-single-digits in each quarter of 2021.

A rejigging of its portfolio under the growth plan saw around 9% of its products adjusted over 2021. That included both the sale of its Chinese infant formula and foot care business Scholl, and the purchase of pain relief gel Biofreeze. The proposed sale of its E45 skin care business is expected to complete in the second quarter of 2022. 

Excluding its China business sale, currency adjusted operating profit fell 2.6% to £2.94 billion. The total dividend for 2021 of 174.6p per share remains unchanged from both 2020 and 2019.  

ii view:

Reckitt operates through the three divisions of hygiene, health, and nutrition. Its many brands include Dettol, Harpic, Lysol, Air Wick, Calgon, Clearasil, Durex, Gaviscon, Nurofen, Strepsils and Vanish. Over the full year 2021, hygiene generated its largest slug of sales at 45% of the total, health was next at 35% and nutrition the balance of 20%. 

For investors, rising costs offer concern. Passing on such costs to consumers is not always easy. Competition, particularly from non-branded and even supermarket own brands, is not to be ignored. Investing in order to regain growth momentum offers its own costs, while the hygiene boost from the pandemic has arguably mudded the waters in assessing its core recovery.  

That said, both these latest figures and 2022 guidance offer reassurance. A rejigging of its product stable has been ongoing, costs remain in focus, and health and hygiene could prove arenas where consumers are prepared to pay more given their wider life importance. A historic and estimated dividend yield of around 3% is also not derisory in an era of ultra-low interest rates. In all, and with the consensus analyst estimate of fair value stood at just over £71 per share, room for long-term optimism looks to persist. 

Positives: 

  • Diversity of product type and geographical location
  • Business portfolio being rejigged under the 2019 appointed CEO

Negatives:

  • Rising input costs    
  • Many supermarket own brands now compete

The average rating of stock market analysts:

Buy

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