Essentialinvestor - yes my calcs agree with yours. Hence my earlier comment about not being impressed with RB's PE and dividend yield. There are better opportunities out there.
Uncle Doug - I hope you're right, not that I hold much in RB or ULVR nowadays. But on a recent visit to China I surveyed numerous stores in a couple of different cities and found RB's and ULVR's shelf dominance eroded by local Chinese and even Japanese brands in such items as household cleaning and condoms. They had less shelf space than my previous visit two years ago. And Enfamil was nowhere to be seen. I used to live in Beijing. ULVR was everywhere in those days and even Tesco had a few stores.
No problem, just an excellent buying opportunity. Strong £ doesn't help but that won't last forever. This is what's known as a correction and the recent fall is still in line with the long term projection of RB. Investors are very short term these days - look at the 5 or 10 year charts. People when they want Gaviscon, Durex or Clearasil are not going to opt for a supermarket own label to save few bob. Add to this the pricing power RB have ... any price drop and customers would come flooding back to stock up on their Harpic or Cillit Bang. Brands have been around for centuries and I see no reason why they will disappear because of Amazon or Aldi. Global reach and marketing superiority will win out as it always has done. Just go to a supermarket abroad next time you're on holiday and see how much dominance RB has in brands you've never even heard of. This is a blip in time and one of the best bargains in the FTSE right now. Rest assured the fund managers will be stocking up at these prices. Normal service will soon be resumed. Grab yourself a bargain.
I don't think the (initially) negative share price reaction to today's announcement necessarily has reasons which are specific to RB. I know from previous experience that it is an unpopular view, but I believe that branded household and food products are receiving increased competition from multiple directions and this is creating long term headwinds for companies that sell them. Competitors include internet sellers such as Amazon (as cited by Hargreaves Lansdown) and the impact of private label goods which form a large proportion of sales at the most rapidly growing retailers such as Aldi and LIdl. For brand name consumer product companies, the continuing expansion in developing markets is barely keeping up with margin erosion in the developed markets. I would not expect the companies to publicise this as it is a pretty fundamental problem for their business model. I notice that Aldi (90% of goods are unbranded) has started stocking Branston pickle at virtually the same price as its own brand and I think this is an illustration of the type of difficulty which branded goods companies are experiencing in maintaining their margins. I would suggest that this competition may be less intense for some brand name based companies like Diageo and Brown-Forman as I think alcoholic drink brands and some beverage companies such as Fevertree are less susceptible (though not immune) to private label competition as most people don't like to serve their guests with cheapo drinks. However, I have reduced my exposure to the likes of RB and Unilever and their US nearest equivalents, even though I have, until very recently, been a major fan of such companies.
At first reading that doesn't look particularly good. Sales jumping 23% on currency and because new acquisitions are included when like for like is only up 2% isn't great to anybody who understands English.
Once again Mr Kapoor is showing his incredible ability to disappoint.
Not impressed. Had already sold out. Not looking to get back in either until these are on a sensible PE and dividend yield.
"Good news in my opinion, they have enough on their plate..."
I think the SP reaction tells us that this is the consensus opinion.
RB are trying to make a virtue of a necessity in pulling out - they were (relatively suddenly) on the back foot, given both balance sheet and tarnished reputation. They had no support for doing the deal, and their SP reflected this.
Hence the rather curious formal statement today which they didn't need to make, having said nothing formally about the potential deal before. But if they hadn't already blown the balance sheet on MJ last year, with the associated charge of over-paying still hanging over them, I don't for a minute think this Pfizer situation would have ended the same way!
SP at 5565. Down 11% on a month ago, down 20% on 2 months ago. Good value - screaming BUY I reckon. Most people would rather buy Cillit Bang or Flash than the supermarket own label. This gives RB and ULVR immense pricing power.
"Citigroup today reaffirms its buy investment rating on Reckitt Benckiser Group PLC (LON:RB.) and set its price target at 7200p."
SITH - I think £72 might well be the "new £90" when it comes to Reckitts targets... there are still plenty of fan-boys among sell-side RB analysts, but their cheerleading is increasingly hoarse IMHO...
You just have to look at the steady decline in consensus estimates - we are now below 340p consensus EPS for 2018 (and depending on FX, I suspect this might have to come down a bit further). I would have to check, but I am pretty sure this was up at 375-380p or even more, not that long ago.
Of course, £72 is perfectly plausible, and possibly in relatively short order (in the overall scheme of things) - and I'd repeat my view that £57 is indeed "too cheap", on most realistic scenarios... and time horizons. But certain things would need to happen - MJ needs to turn up more decisively (and not just via the old trick of suddenly finding more synergies to target)... and they probably have to dodge the bullet of the Pfizer Consumer auction, though I am not sure the CEO will see it that way.
Broker Forecast - Citigroup issues a broker note on Reckitt Benckiser Group PLC
By StockMarketWire | Wed, 28th February 2018 - 09:00
Citigroup today reaffirms its buy investment rating on Reckitt Benckiser Group PLC (LON:RB.) and set its price target at 7200p.
"I have a question for RB share holders... Do you feel the sentiment would change if RB announces something on the above two categories?... Assume the above is via a licensing deal so not much cash paid upfront (not in the billions!!!!) but via royalities?"
AI - a bit of a strange question... and intriguingly cryptic?
The answer for me would be - maybe a tad, at the margin, and wouldn't do any harm.
But de minimis, really... all else equal, it's not going to make much of a dent in the two (and related) big issues currently confronting the SP, namely (i) the accusation that they have significantly over-paid in the $17bn Mead Johnson deal, and (ii) they may be about to try and justify paying a not dissimilar amount for the Pfizer consumer unit, with associated concerns over a possible need for a big equity finance element.
I think the fall has been way overdone on this one...
I have a question for RB share holders.
Would you support a deal whereby you get to grow market share of the Durex Brand in North America by Durex offering a new type of condom "dubbed the Viagra condom"... (Tremendous scope over here given Trojan is number 1 by some margin in North America)
Would you support a deal whereby RB can get into the Erectile Dysfunction Market including over the counter (OTC switch at an appropriate time in the future but prescription only during the early stages)
The above two would fit into the strategy of focussing more on the higher margin sector of consumer health
The above would also drive "growth"
Do you feel the sentiment would change if RB announces something on the above two categories?
Assume the above is via a licensing deal so not much cash paid upfront (not in the billions!!!!) but via royalities?
Bill1703. You say " you receive cash as a dividend, and your shares are marked "ex-dividend" by an equal amount".
True in principle, but it's not possible to say exactly how much they are re-rated because dividends and gains are taxed differently and the price can change substantially regardless of the dividend: due to overall market sentiment. The re-rating should reflect some sort of average tax situation for the different holders.
What I'd like to know is how that average compares to my own tax situation, in case it is better for me, personally, to deal just before or just after the ex-div date. The difference could be negligible but I'm certainly not a typical (investment house fund manager?) shareholder.
In the most recent edition, with RB currently an underperformer within their "Great Ideas" portfolio. Full text below:
"OUR BULLISH CALL on consumer health and hygiene titan Reckitt Benckiser (RB.) is a disappointing 16% in the red. The shares have fallen despite full year results (19 Feb) revealing a return to sales growth in the fourth quarter, boosted by a strong start to the flu season, as well as a 7% hike in the total dividend to 164.3p.
Investors were disappointed as the Durex, Strepsils and Air Wick brands owner missed 2017 profit estimates and issued vague guidance for moderate medium-term operating margin expansion. In 2018, the £42.7bn cap is targeting 13% to 14% total sales growth thanks to the acquisition of US baby formula maker Mead Johnson, yet tepid 2% to 3% like-for-like growth looks on the cards amid tough market conditions.
Uncertainty regarding the magnitude and financing of mergers & acquisitions is also weighing on the shares; Reckitt could become involved in an auction for Pfizers consumer healthcare operations, which are up for sale.
Though market conditions are challenging, we remain fans of Reckitts brand strength and consistent dividend growth and note Liberum Capitals £80 price target, one implying a healthy 35.4% upside.
SHARES SAYS: Reckitt Benckisers 2017 performance and share price chart are disappointments to us, yet were sticking with the company for its focus on higher margin health and hygiene categories and growth potential in emerging markets."
Fairly heavy-hitting stuff from the FT today. Pretty much all of it "fair comment" IMHO - but as always, it is op-ed pieces like this that actually pique my interest, as they often prove to be a reverse indicator of 'going bearish at the bottom'.
Anyway, full text below for anyone who is interested:
"Reckitt Benckiser faces battle to regain markets trust"
"Rakesh Kapoor may have hoped he had put 2017 behind him, but the chief executive of Reckitt Benckiser looks to have his work cut out again this year. Despite his trademark evangelicalism, whether in describing a new campaign for Durex condoms involving emojis or the thermo-foaming properties of the groups latest Finish dishwasher tablets, Mr Kapoors persuasive abilities failed to prevent Reckitts shares falling 7.5 per cent on Monday their biggest one-day fall in more than seven years.
Investors were disappointed that the groups usual forecast for moderate margin expansion would be watered down in 2018 by Mead Johnson, the US-based infant formula business bought last June for $17bn. Margins would also be hit by costs related to last autumns decision to split Reckitt Benckiser into two business units. The group also said unfavourable currency movements would reduce its 2018 results by 7 per cent higher than analysts expectations of a 3 per cent hit.
At heart, however, is an issue of trust. As recently as 2015, Reckitt enjoyed like-for-like revenue growth of 6 per cent. And, as Mr Kapoor reminded analysts on Monday, since 2012 it increased its operating profit margin by 5 percentage points to 27.1 per cent last year, the highest among home and personal care companies. But for the past 18 months, Reckitt has suffered a series of one-off problems and disappointments that have led some investors to question Mr Kapoors sure-footedness. A failed Scholl footwear launch and Junes cyber attack, which affected dozens of companies, had a bigger than expected effect on revenues.
Reckitt entered 2017 with a forecast for 3 per cent like-for-like revenue growth, but for the first nine months of the year, like-for-like revenues fell 1 per cent compared to the same period in 2016. There was some recovery in the final quarter, with growth of 2 per cent. That took revenues for the year to £11.5bn flat on the previous year. Mr Kapoor says Reckitts markets are now growing at just 2 per cent because of pressures on consumer goods companies from a price war between retailers grappling with the growth of ecommerce groups such as Amazon. Reckitt is forecasting 2-3 per cent revenue growth in 2018, which should imply some outperformance if it manages to hit the top end of that range.
But James Edwardes Jones, an analyst at RBC Capital Markets, says: We are concerned at the lack of value growth, which in our view has been a crucial element of RBs historic success. We wonder to what extent this plays a part in managements expectation of some specific factors impacting margin for 2018. The acquisition of Mead Johnson has also drawn a mixed reception. While Mr Kapoor regards the infant formula business as within the consumer health sector that he sees as Reckitts aspiration, others are less sure. Over-the-counter drugs are seen as having high earnings quality but Meads infant formula sales are highly dependent on the potentially attractive but unpredictable Chinese market.
Mr Kapoor declined to comment on Monday on the sale of Pfizers healthcare arm, valued at between $14bn-$17bn, but has previously said he would be very interested if the US pharma group were to put the unit up for sale. However, concerns exist about how Reckitt would pay for the business given that its net debt levels are high following the Mead Johnson acquisition, at 3.5 times ebitda. Iain Simpson, analyst at Société Générale, says: There is a strong strategic rationale for RB acquiring Pfizer Consumer Health but there is a price at which this potential acqui
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