Reckitt Benckiser Group PLC – Leading Player with Structural and Sustainable Growth in Long run

Reckitt Benckiser Group PLC (LON: RB.) is a FTSE 100 listed consumer goods company with global operations. The group operates through two business segments - Health and Hygiene Home. Its major brands include Dettol, Harpic, Lysol, Mortein, among other hygiene and household products.

Corporate Change
9^th April 2020: Jeff Carr held the position of Chief Financial Officer (CFO) in Reckitt Benckiser Group as Adrian Hennah had stepped down from CFO position.

Financial Highlights (FY2019 for the year ended 31^st December 2019) – Reported a Complex Year with Operational Changes

(Source: Annual Report)

On 6^th April 2020, RB. Group had released its full-year results for FY2019, which reported revenue of £12.8bn, representing 2% reported growth and 0.8% Like-for-like (LFL) growth against FY2018, driven by improved volume and price mix growth in hygiene home businesses. While the adjusted operating margin stood at 26.2% and Adjusted Earnings Per Share (diluted) stood at 349.0 pence in FY2019. The operating loss of FY2019 was £1.95bn while net loss from continuing operations stood at £2.78bn against the previous year. The total dividend for the year 2019 reported at 174.6 pence, representing 2% growth against FY2018.

Share Price Performance
 
Daily Chart as on 24^th April 2020, before the market closed (Source: Thomson Reuters)

Reckitt Benckiser PLC’s shares were trading at GBX 6,500 on 24^th April 2020 (before the market close at 2.15 PM GMT+1), up by 1.50% against the last day closing price. Stock's 52 weeks High is GBX 6,744.00 and Low is GBX 5,130.00.

Conclusion
During the financial year 2019, the group reported an increase in revenue, albeit reported a decline in bottom-line items of the income statement. However, the group is considering 2020, a transformational year and targeting to accelerate the shareholder value. The company’s recent decision to invest 2 billion pounds would result in stimulating growth in financial performance.

Considering the health emergency amid the of Covid-19 contagion, the RB. Group is likely to benefit since they cater to both health and hygiene market. Moreover, Coronavirus pandemic is set to drive the market for hand sanitizer, masks, and other hygiene and personal care products in FY20 while the group has seen demand surge for their Dettol and Lysol products. Presently, its supply chain is also flexible and resilient to meet the increasing demand. 

Over the last 4 years (FY15 - FY19), the company’s revenue surged from GBP 8.8 billion in FY15 to GBP 12.8 billion in FY19. Compounded annual growth rate (CAGR) stood at 9.69 per cent.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 6,404.00 (as on 23^rd April 2020).

 
Vivo Energy PLC- Strong Balance Sheet Position and Resilient Business Operations to Weather the Short-Term Uncertainties
Vivo Energy PLC (LON: VVO) is a FTSE 250 listed company, which is engaged in the business of oil refining and markets under the brand of Shell to retail and commercial customers. The company distributes fuels, lubricants, and liquefied petroleum gas (LPG).

On 30^th April 2020, the group will announce its first-quarter 2020 results. 

Recent News
6^th February 2020: The Vivo Energy Maroc announced the extension of its Shell service station by inaugurating four new stations.

Covid-19 Update 
As on 25^th March 2020, the VVO group released an update regarding the impact and measures adopted regarding COVID-19 crisis. The group has made several donations and providing hand sanitizers to Kenyan Government through their lubricant facilities in Mombasa. By the time of this update, there was minimal impact over their business operations, and its sites remained open and continued to supply fuel to its commercial customers. At year-end of 2019, the group reported the net debt to EBITDA at 0.5x. At the end of February, the group had short-term capital resources of USD 1.7 billion (including USD 0.2 billion of undrawn revolving credit facility and USD 1.1 billion of undrawn unsecured bank facility) and net debt of USD 0.4 billion. The group also affirmed its intention to distribute a full-year dividend of USD 34 million, considering the robust state of balance sheet. However, it will be confirmed in the annual general meeting scheduled on 20^th May 2020, based on the impact of Covid-19. 

Share Price Performance

Daily Chart as on 24^th April 2020, before the market closed (Source: Thomson Reuters)

Vivo Energy’s shares were trading at GBX 73.80 on 24^th April 2020 (before the market close at 2.28 PM GMT+1), up by 6.19% against the last day closing price. Stock's 52 weeks High is GBX 144.70 and Low is GBX 59.80.

Valuation Methodology
 

Valuation Metrics



As on 31st March 2020, the Price/ Earnings, EV/EBITDA, and Price to Book multiples of the VVO were around 8.0x, 3.1x and 1.5x, which were lower as compared to the General Retailers’ industry multiples. It reflects that the company’s stock is undervalued against its peers.

Conclusion
In 2019, the company delivered modest growth with 11% sales volume rise and 8% increase in adjusted EBITDAwhile the business built the platform for future growth. In the short-term period, the outbreak of COVID-19 adversely impacting the performance of the company due to nosedived demand for fuel due to the travelling restrictions. Moreover, the volatile oil prices putting further pressure on the company. However, to weather the short-term uncertainties, the group also has taken several steps to slash marketing and capital expenditures.

Looking ahead, the Board remains focused on creating sustainable long-term value for the benefit of the shareholders and wider stakeholders. Vivo has also built good momentum into 2020 and is excited about the upcoming twelve months, as the company look forward to delivering another year of robust growth.

Over the last 4 years (FY15 - FY19), the company’s revenue surged from USD 5,971.77 million in FY15 to USD 8,302.00 million in FY19. Compounded annual growth rate (CAGR) stood at 8.59 per cent.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 68.20 (as on 24^th April 2020, before the market close at 9:15 AM GMT+1) with lower double-digit upside potential based 8.36 NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

*All forecasted figures and Peers information has been taken from Thomson Reuters

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