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MARKET COMMENT
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Spotting a business that is an "obviously great investment" is not really that difficult. The problem lies in sticking with that company through thick and thin. Reckitt Benckiser (LSE: RB.) is one such company that fits the bill of being an "obviously great investment". The company, as we know it today, resulted from the merger of Reckitt & Colman and the Dutch household goods outfit Benckiser. Reckitt & Coleman itself was the product of another merger. The two companies were J&J Colman, founded by Jeremiah Colman in 1814, and the starch producer Reckitt & Sons, set up by Isaac Reckitt in 1840. The company has more than stood the test of time. Of course the products that the company makes today bears little resemblance to what it did some 180 years ago. That is the first clue to spotting an obviously great investment, namely the ability to evolve and adapt to the changing competitive environment. That said, the evolution of Reckitt Benckiser must have left some investors tearing their hair out at times. The evolution has not been altogether painless. The slide in the share price from a peak of 1200p to just 550p in the late 1990s is testimony of some of that anguish. Despite the slump in the share price, the company maintained its dividend. That dividend was adequately covered by operational cash flows. That is clue number two, namely that cash, or more precisely, cash flow is king. Additionally, when that cash is coupled with a sound corporate strategy, the prospects can be very promising. The regular flow of dividends has allowed investors to take advantage of the lower share price and convert cash into even more shares. That helps to increase the total return on investment. As far as the company is concerned, the healthy cash flow has allowed it to repay debt and reduce interest payments. Reckitt Benckiser today showed that its status as an "obviously great investment" remains intact. Third-quarter profits were ahead of expectations, up from £101m to £130m. Revenues climbed 4% to £876m. With its global reach, weaker trading in emerging markets was offset by a stronger performance in Western Europe and North America. That improved showing was due to the success of new products, which included new dishwashing products and air fresheners. Reckitt Benckiser said it expects growth in the first half to be sustained in the second. Double-digit growth is always tough to maintain, though. At some stage growth will naturally slow. That is when the need to evolve kicks into action again. For the long-term investor that is also the time to take advantage of market uncertainty just as long as you believe the company is still an "obviously great investment."