Reckitt Benckiser Group PLC

Reckitt Benckiser Group PLC (LON: RKT) is a FTSE-100 listed Company, which develops, produces, acquires, and distributes consumer products. RKT’s brands fall into three categories – Hygiene, Health and Nutrition. Each brand is in a unique position to be competitive. It is a trusted household brand that serves in over 190 countries. The Company sells nearly 20 million products a day globally. It employs more than 40,000 diverse people worldwide.

The Hygiene Home portfolio helps in eliminating dirt, germs, odours, and pests from households across the world. The health portfolio serves with products that offer pain relief, protection, nutrition, and wellness. The major brand includes Dettol, Strepsils, Clearasil, Veet, Harpic, Mortein, Vanish, among others.

Key Dates

• On 14 June 2021, RKT has scheduled the payment of its FY20 final dividend. The ex-dividend date was 6 May 2021.
• On 27 July 2021, Reckitt expects to announce its H1 FY21 results.

Growth Prospects

• Favourable Market Dynamics: RKT operates in an attractive and growth market segments, which is accentuated by COVID-19 outbreak. The exceptional conditions created by the Covid-19 pandemic shall help the Company to gain market share and benefit the portfolio of disinfectant brands, including Lysol and Sagrotan. Moreover, the increased consumption for hygiene products and preventative treatments shall uplift the portfolio of Hygiene and Health. Adjacently, lockdown and social-distancing measures have increased the consumption of household goods.
• Disciplined Capital Allocation and Capital Return Policy: RKT has a disciplined capital allocation, which shall help them to continuously invest in a portfolio, generate strong free cash conversion, and sustain the dividend payout policy. During FY20, the Company recorded cash conversion of 131%, reduced leverage (net debt/adjusted EBITDA) to 2.4x), and sustained dividend payout in line with FY19 levels. During FY20, the Company recommended a final dividend of 101.6 pence, bringing a total dividend to 174.6 pence (in line with FY19 levels).
• Record Investments: RKT invested around £745 million in FY20 to improve Go-to-Market capabilities, strengthening R&D innovation capabilities, accelerate global expansion, and bolster supply chain facilities. All these investments shall rebuild the long-term capabilities.

Risk Assessment

• Principal Risks: RKT is exposed to uncertainties related to product safety, supply chain disruption, destructive cyber-attacks, missed growth opportunities arising with digital channels, strict product safety regulations, and global competition laws.
• Emerging Risks: Increasing geopolitical volatility, fluctuations in oil prices, Brexit, and unfavourable local import regulations are hampering the growth prospects. Moreover, the Covid-19 pandemic can change regulatory policies and adversely impact Reckitt’s business. In addition, a sustained economic recession can impact consumer sentiments and purchasing power.
  

Now we will analyse some key fundamental and shareholders statistics of Reckitt Benckiser Group PLC.

Recent News and Regulatory Developments

Disposal: On 7 June 2021, Reckitt signed an agreement to sell its China-based Infant Formula and Child Nutrition business Primavera Capital Group for an implied enterprise value of US$2.2 billion.

Rebranding: On 31 March 2021, Reckitt changed its Tradable Instrument Display Mnemonic from RB.L to RKT.L on the London Stock Exchange (with effect from 1 April 2021).  Shareholdings will remain unaffected.

Acquisition: On 24 February 2021, RKT acquired the Biofreeze brand from Performance Health, representing a unique and exciting opportunity to unlock value.

First-Quarter Trading Update (for the quarter ended 31 March 2021, as on 28 April 2021)

(Source; Company Presentation)

• RKT delivered LFL net revenue growth of 4.1% year-on-year (YoY) in Q1 FY21, driven by continued investment, focus on execution, and robust demand for products.
• The Group continued strong execution towards four key drivers, including new places, new spaces, market share gains, and increased penetration.
• The e-commerce sales surged 24% year-on-year in Q1 FY21 and contributed 13% of Group revenue.

Financial and Operational Highlights (for the 12 months ended 31 December 2020, as on 24 February 2021)

(Source; Company Website)

• The Company delivered a strong revenue performance with nearly £14 billion of sales and an increase of 11.8% like-for-like (LFL) growth. The growth was driven by volume-led growth in a Covid-19 environment.
• As per the segment, Hygiene division witnessed strong growth (mainly from Lysol and Finish), with an increase in LFL net revenue of 19.5% YoY. Hygiene business has improved overall market share and broad-based growth in all regions. Health LFL net revenue surged by 12.1% YoY, with strong Dettol growth in all key markets, improved overall market share performance, robust growth from Gaviscon and better Durex momentum (against the previous year).
• In the eCommerce channel, the Company had a record full-year growth of 56% YoY and account for approximately 12% of group net revenue.
• In terms of Geography, Reckitt Benckiser witnessed a strong LFL growth in all regions, mainly in North America. On a LFL basis, RKT has improved its growth in Developing Markets, driven by Dettol and Lysol.
• In FY20, the Company comes from loss to profit, with a full year reported operating profit of £2,160 million and reported diluted EPS of 159.3 pence.
• However, the adjusted diluted EPS decreased by 6.3% YoY, due to the tax benefits recognised in 2019 and the non-recurrence of certain interest.
• The Company’s free cash flow generation increased to £3,052 million as compared with the previous year (2019: £2,145 million), with net debt decreased to £9.0 billion.
• During 2020, the Company invested around £745 million in building capabilities, which build a stronger business for the future.
  

Financial Ratios (FY20)

 Share Price Performance Analysis

 (Analysis done by Kalkine Group)

On 14 June 2021, at 8:42 AM GMT, Reckitt Benckiser Group PLC’s shares were trading at GBX 6,504.00, up by 0.0025% against the previous day closing price. The stock made a 52-week High and Low of GBX 8,020.00 and GBX 5,782.00, respectively.

RKT’s stock price is sustaining above the 50-day EMA (GBX 6,437) and 100-day SMA (GBX 6,365), indicating an upward trend. Even MACD has given a bullish crossover and trading above the centreline, supporting a positive stance. The momentum indicator 14-day RSI is also trading in positive territory at ~55.61 levels. Moreover, volumes show increasing trend along with an increase in prices, substantiating increased participation and trading in the stock.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook Scenario

The outlook for FY21 remained unchanged and RKT is on track to meet FY21 targets. The guidance for FY21 is given in the image below:

(Source; Company Presentation)

In the medium-term, Reckitt expects to deliver mid-single-digit revenue growth with mid-20s of adjusted operating profit margins by the mid-2020s. Moreover, the Company has recently announced an acquisition of Biofreeze (market leader in over-the-counter topical pain relief with roll-on, gel, spray, and patch formats), which would deepen RKT’s Health platform and its presence in the broader pain category. In a nutshell, Reckitt has shown progress to rejuvenate sustainable growth with improvement across growth drivers, enhanced digital sales, elevated demand across brands, and the Company has greater confidence to meet its financial guidance.

Based on the record investments, reduced leverage, disciplined capital allocation, continued strong execution, increased e-commerce sales, enhanced confidence in meeting medium-term goals, strong demand prospects, promising market dynamics, with support from the valuation as done using the above method, we have given a “BUY” recommendation on Reckitt Benckiser Group PLC at the current market price of GBX 6,504.00 (as on 14 June 2021 at 8:42 AM GMT) with lower double-digit upside potential based on 25.25x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV.

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