Should you buy Reckitt Benckiser (LON: RKT) shares now?

Highlights

• FTSE100 listed disinfectant product maker Reckitt Benckiser Group Plc has agreed to the sale of its E45 skincare brand and associated sub-brands to Stockholm-based Karo Pharma.
• The sale of E45 skincare is part of the company’s business strategy to shift from a brand-led to a category-led business model.

FTSE100 listed disinfectant and healthcare product maker Reckitt Benckiser Group Plc (LON: RKT) has agreed to the sale of its E45 skincare brand and associated sub-brands to Stockholm-based Karo Pharma. The proposed sale of E45 brand, a trusted brand in the skincare industry, was agreed upon for an enterprise value of £200 million.

The sale of E45 skincare is part of the company’s business strategy to shift from a brand-led to a category-led business model and will be a one-step forward in achieving this goal.

The company has recently changed its business approach and is looking out for private equity firms to sell off its non-core brands to focus on high-growth categories. In 2021, it sold the nutrition business in China for USD 2.2 billion to private equity firm Primavera Capital. Later, the company sold its Scholl footcare brand to another private equity group, Yellow Wood Partners. Simultaneously, the company acquired Biofreeze, which was more aligned with its business strategy.

The proposed sales deal of E45 skincare is expected to complete by the first half of 2022. Reckitt will provide its manufacturing facility and production support to Karo Group for a limited period for a smooth transition. However, production will be later shifted to a third-party contract manufacturing company as the manufacturing facility is not included in the sales agreement.

Reckitt Benckiser Business Performance

The company’s business has been witnessing steady growth. In the first nine months, the group reported net revenue of £9,873 million, a rise of 3.6%. Segment-wise, Hygiene is the single largest contributor to the business with a 12.7% rise in net revenue at £4,476 million. Health and Nutrition segment revenue stood at £3,330 million and £2,067 million, respectively.

After the strong business performance in recent quarters, Reckitt expects full-year net revenue growth of 1-3% because of a decline in its product’s demand following anticipation of lower Covid-19 spread worldwide after successful vaccination. Also, inflation across different product categories might impact the profit margins.

Overall performance

Reckitt Benckiser operates in a mature industry with established brands under its portfolio which provides a consistent revenue. Also, the company is working on some strategic business changes to focus on high growth categories like health care business.

Stock price performance

(Image Source: Refinitiv)

Image Description- Reckitt Benckiser stock movement in last 6 months

After the announcement, the company’s stock surged to a day’s high of GBX 6,290 with a market cap of 44,783 million as of 24 December 2021. Its dividend yield stands at 2.78%.