Fundamental Insights About Reckitt Benckiser Group PLC

Reckitt Benckiser Group Plc (RB) is a consumer health and hygiene company that manufactures and markets household, toiletry and health care products. It includes air fresheners, laundry products, dishwashing detergents, disinfectant sprays, water softeners, household cleaners, and personal care products. It also sells over-the-counter (OTC) drugs, cough and congestion tablets. Sinus relief products, gastric liquids, hair removal and pest control products. During FY18 company's 62% of the total sales came from Health & Personal care products, and 38% of total revenue was derived from Home, Hygiene and Portfolio brands.

Key Brands: Air Wick, Bang, Calgon, Clearasil, Cillit Bang, Dettol, Durex, Finish, Gaviscon, Harpic, Lysol, Mortein, Mucinex, Nurofen, Scholl, Strpsils, Vanish, Veet, and Woolite.

Health business overview: Company is engaged in providing over-the-counter (OTC) drugs for fever, cold, pain, sore throat problems, and flu problems. Its health business portfolio comprises medicated sore throat relief products, sexual wellbeing, condoms, cough and congestion tablets, sinus relief products, acne treatment creams, facial washes and cleaning pads, analgesic products, upper gastrointestinal products, footcare products and others.

Major brands include Strepsils, Durex, Mucinex, Nurofen, Nutramigen, Gaviscon and Scholl.

Home business overview: Provides air care, fabric treatment and garment care products, water and fabric softeners, laundry detergents and shoe care products for leather shoes.

Major brands include Air Wick, Calgon, Vanish and Woolite.

Hygiene business overview: Provides personal hygiene products and home hygiene products for residential customers. Comprise antiseptic liquids, disinfectant cleaners, lavatory cleaners and speciality cleaners, automatic dishwashing products, pest control product solutions for domestic infestations, hair removal products and depilatory products for skin care and acne treatments.

Major brands include Harpic, Dettol, Veet, Lysol, Finish, Clearasil, Cillit Bang and Mortein

Portfolio brand: Provides laundry detergents, fabric softeners and ironing aids.

Recent News

On 12th June 2019, the company announced the appointment of Chief Executive Officer (CEO), Laxman Narasimhan who will succeed Rakesh Kapoor. From September 1, 2019, Mr Narasimhan will be designated Group CEO.

On 9^th April 2019, the company was indicted by the United States Justice Department concerning Indivior Plc, which got demerged from RB at the end of 2014.

Q1 FY2019 Trading Update (as on 2nd May 2019)

The company reported a slow start to the year with like-for-like (LFL) sales growth of 1%. Momentum in Hygiene Home continued with LFL growth of +3%, while a slow start in Health division was reported; LFL performance in Total Health was flat. The company is on track to achieve LFL net revenue growth target of 3-4% in FY19.

Financial Highlights (FY2018, £ million)

(Source: Annual Report, Company Website)

For FY18, the company reported total sales of £12,597 million, up by 3.0% on both pro-form and LFL basis, including consideration of their MJN business for a full 12 months. At constant currency basis company reported a sales growth of 15 per cent. Majority of Reckitt Benckiser Plc sales were generated outside the UK. Stronger pound against the basket of currency in which they operate resulted in the negative growth of 5 per cent. Reckitt Health business grew by 3 per cent on a Pro-forma basis and by 2 per cent on Like-for-like basis. Health business witnessed improving trend in all of the segments. Infant Formula and Child Nutrition business grew by 3 per cent in FY18 on account of innovation and strong market growth in China. Their Hygiene business grew 4 per cent on Like-for-like basis, on account of the improved market condition and successful innovation. All brands within Hygiene business unit witnessed stronger growth led by Harpic and Lysol. On geographical standpoint, emerging economies saw strong high-single-digit growth on LFL basis, North America also witnessed good growth during the year, but European market remained tight, sales impacted in Europe mainly on account of challenging pricing environment.

During the period ended 31st December 2018, the company's cash generated from continuing operation stood at £3,330 million as compared with £3,153 million in FY17, higher by 5.6 per cent. For FY18, Net Debt was reported at £10,406 million against the £10746 million in FY17. The Board of Reckitt Benckiser announced a final dividend of 100.2 pence. Its full-year dividend stood at 170.7 pence per share, 3.9 per cent higher against the FY17 full-year dividend of 164.3 pence per share.

The Company reported adjusted earnings per share of 333.9 pence for FY18, up marginally by 10 bps against the previous financial year. Gross margin for FY18 stood at 60.6 per cent, lower by 70 basis points on a Pro-forma basis and 40 basis points on a reported basis. The lower margin was driven by a combination of input costs and a tough pricing environment in Europe. The company also increased its operating and capital expenditure in many verticals to meet the demand of its customers.

During FY18, the adjusted operating margin stood at 26.7 per cent, higher by 20 basis points on a Pro-forma basis and declined 60 basis points on a reported basis. Finance cost stood at £325 million in FY18 against the £238 million in FY17, increased significantly due to the acquisition of MJN in mid-2017.

In the financial year 2018, Net income attributable to shareholders stood at £2,161 million, showing a slump of 65 per cent as compared with FY17. It was due to an exceptional item of £3,024 million in relation to the gain on sale of the Reckitt’s food business, a tax credit of £1,421 million relating to the effect of US tax reform and an investigation charge by US Department of Justice of £296 million. On an adjusted basis net income climbed by 4% at £2,410 million. Free cash flow for FY18 stood at £2,029 million against the £2,129 million in FY17.

The major factors driving the growth include expanding speciality drug innovation, increasing access to medicines in developing countries. The global pharmaceutical market is projected to be strongly influenced by global GDP growth, innovations, the introduction of new products, broader access to healthcare services, and increasing funding. The global household care market witnessed a significant growth trend during the last few years. RB intends to transform itself as a major consumer health and hygiene company in the market as compared to its peers.

RB must constantly develop, produce and market new products to maintain and enhance the recognition of its brands, and should strive to achieve a favourable mix of products. RB’s performance will be affected by the increasing influx of counterfeited products in the market, especially in emerging countries. The growing market for counterfeit goods has been on the rise across industries and is affecting the sales as well as the image of the established brands.

Share Price Performance

Daily Chart as at July-04-19, before the market closed (Source: Thomson Reuters)Â

At the time of writing (as on July 04, 2019, at 3:59 PM GMT), shares of RB were quoting at GBX 6,403/share and down by 0.031 per cent as compared with the yesterday's closing price level. The company’s outstanding market capitalisation was around £45.49 billion with a dividend yield of 2.67 per cent.

In the last 52-wks, shares of Reckitt Benckiser Group PLC have registered a high of GBX 7,174 (as on Oct 03, 2018) and a low of GBX 5,559 (as on Jan 24, 2019). At the current trading level, as quoted in the price chart, its shares were trading 10.74 per cent below the 52wk high price level and 15.18 per cent above the 52wk low price level.

Today's volume in the RB stock (before the market close, at the time of writing) stood at 309,724. However, the 5-day average daily volume traded in the stock was at 1,338,393.00, which was 5.00 per cent below the 30-day average daily volume of 1,408,801.10 traded on the London Stock Exchange.

From the SMA (Simple Moving Average) standpoint, at the time of writing, its shares were trading above 30-days SMA, 60-days SMA and 200-days SMA, which indicates a positive trend in the stock price and carrying the potential to move up from the current trading levels.

In the past 1 year, shares of the Reckitt Benckiser Group PLC have delivered a positive price return of 0.74 per cent. On a year-to-date basis, the stock was up by approximately 6.52 per cent and 0.34 per cent in the past three months.

Reckitt Benckiser Group PLC share's RSI for the 30-days, 14-days and 9-days were quoting at a normal range and stood at 53.12, 53.96 and 56.08 respectively. However, 3-days RSI of the stock was 78.63.

The volatility of the stock for the 200-days, 90-days, 30-days and 10-days stood at 23.84, 21.80, 22.11 and 29.25 respectively.

RB 2.0 is the right platform for upcoming growth and outperformance and is helping to build decent top-line momentum. The company is seeking to strike the right balance between pricing, cost and competitiveness, despite continued margin pressures. The company statement details various operational changes that are underway with the new CEO, Laxman Narasimhan, joining in September.

The company intends to continue its current policy of paying a modest dividend equivalent to around half of total adjusted net income, while the priority remains to invest financial resources back into the business, including reducing debt. The group’s robust platform for growth in emerging countries like China and India is complemented by digital and e-commerce excellence.

RB is one of the leading consumer goods companies offering health, hygiene and home care products. Sustained revenue growth, research and development (R&D) activities and market position are the major strengths of the company. As guided at the 2018 full year results, Group headline operating margins are slightly ahead of the prior year, seeing benefit from the leverage of organic growth and efficiency actions.