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.

On 26 October 2021, RKT expects to release its trading update for Q3 FY21.

Investment Rationale – BUY at GBX 5,418.00

• In the latest trading update (released on 23 September 2021), RKT reiterated that it expects to deliver net revenue growth of 0-2% in FY21, with adjusted operating profit margins of between 22.7-23.2%.
• The industry mega-trends that can elevate Reckitt’s growth are amplified by the Covid-19 pandemic, including increased hygiene requirement, growing demand for self-care, rising demand for adult nutrition, and technology proliferation.
• On a forward 12-month basis – Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are quite lower against the industry average of the Personal & Household Products and Services sector. Adjacently, the Dividend Yield is higher than the industry median.
• From a technical standpoint, the momentum oscillator 14-day (~27.95) indicating an oversold scenario, while the RKT’s stock price is trading close to the lower Bollinger Band.

Key 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.
• 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.
  

Recent Change

Directorate Change: On 4 October 2021, RKT announced that Laxman Narasimhan (Chief Executive Officer) has stepped down as member of the Nomination Committee.

Financial Highlights (for the six months to 30 June 2021, as on 27 July 2021)

 (Source: Company Website)

• During H1 FY21, net revenue grew by 3.7% (excluding IFCN China) year-on-year; and reported an adjusted operating margin of 22.7%.
• As on 30 June 2021, net debt was stood at £9,084 million, following the £520 million in free cash flow in H1 FY21.
• The Group recommended an interim dividend of 73 pence, in line with H1 FY20.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

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

Conclusion

The cost inflation can offset the expected margin accretion from IFCN China’s disposal. However, the Company has increased penetration, gained market share, and continued geographic expansion for long-term growth. RKT is on track to meet its medium-term revenue and margin targets, supported by increasing operational excellence, strong demand for products, improved e-commerce sales and strong execution across key growth drivers. The stock made a 52-week High and Low of GBX 7,774.00 and GBX 5,367.00, respectively. 

Based on the 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 5,418.00 (as on 12 October 2021, 8:02 AM GMT+1) with lower double-digit upside potential based on 22.47x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

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

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

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