Interactive Investor

Pandemic hygiene boom boosts this healthcare stock

20th October 2020 10:10

Richard Hunter from interactive investor


Share on

This FTSE 100 company outstrips many beleaguered peers as Covid-19 has put cleanliness centre stage.

Reckitt Benckiser (LSE:RB.) was already seeing the benefits of improving hygiene and healthcare awareness, and the pandemic has moved growth to another level.

Like-for-like sales in the year to date have been extremely strong, with no signs of a let-up in the third quarter. Hygiene sales improved by 19.5%, Health by 12.6% and Nutrition by 4.1%, with vastly improved performances across all geographies. This led to a group improvement of 13.3%.

Within its array of brands, Dettol and Lysol did best, with increased demand resulting in those two products being sold in 19 new markets this year. At the same time, e-commerce sales also grew by 45% and now represent 12% of overall revenues. The company wants this to grow further.

Operationally, Reckitt is ahead of plan with its cost savings, which total £300 million in the year to date. Further efficiencies will help to shoulder the burden of the £2.2 billion investment programme which the company plans to undertake over the next three years.

Of course, general attitudes to hygiene have now altered globally and the likelihood is that this new awareness is now here to stay. 

This will benefit Reckitt’s longer-term objectives, with the bonus of increased sales of minerals, vitamins and supplements also providing a shorter-term boost. 

Meanwhile, the company’s cash-making abilities enable the ongoing payment of a dividend, unlike some of its blue chip peers, and a yield of 2.4% is of some solace to income-starved investors.

Inevitably, all is not plain sailing.

The investment plan is a significant undertaking and will be a drain on resources as it is rolled out. In the meantime, the Nutrition unit has suffered on the infant side in particular, given the difficulties of cross-border sales between Hong Kong and China.

The former is likely to be responsible for an outlook which Reckitt has slightly downgraded, moving expected growth for full-year revenues from high to low single digits.

Even so, this is an environment suited to the company’s aspirations, both by the products it sells and the geographies in which it markets them. 

Reckitt has been an exception to the rule of generally beleaguered FTSE 100 companies, with the share price having significantly outperformed. It rose by 20% over the last year, as compared to a decline of 18% for the wider index.

With the real possibility that changing attitudes towards health and hygiene will become entrenched, Reckitt is well positioned and the market consensus of the shares as a ‘buy’ reflects that optimism.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox

Sign up for a free research account to get the latest news and discussion, and create your own virtual portfolio.

Free Sign Up