The Stock Picker’s Guide To Reckitt Benckiser Group Plc

A structured analysis of Reckitt Benckiser Group Plc (LON:RB).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Successful investors use a disciplined approach to picking stocks, and checklists can be a great way to make sure you’ve covered all the bases.

In this series I’m subjecting companies to scrutiny under five headings: prospects, performance, management, safety and valuation. How does Reckitt Benckiser (LSE: RB) (NASDAQOTH: RBGLY.US) measure up?

1. Prospects

Consumer staples are a classic defensive sector.  When the FTSE 100 index halved during the financial crash, RB’s shares lost just 9%.

In recent years, RB has focused on growing its higher-margin health and hygiene brands like Durex and Neurofen, rather than lower-margin home-care products, though the distinction can be obscure. It recently moved into vitamins and health supplements with a £1.4bn US acquisition.

RB is a global business selling in 200 countries.  Rapid growth in emerging markets mean these now contribute nearly 40% of sales, and will receive an increasing proportion of RB’s capital spending over the next few years.

Its pharmaceuticals business still contributes a quarter of sales but is suffering from generic competition to its main product, suboxone.

2. Performance

RB has an impeccable record of rising sales, operating profit, earnings and dividends since at least 2005. Over that time operating margins have broadly strengthened, from around 20% to 25%. However, return on equity has followed the reverse trend due to acquisitions and capital investments.

Dividend cover has tracked down from 2.5 times to just under 2, but is still acceptable.

3. Management

A lifelong employee, Rakesh Kapoor succeeded as CEO in 2011 and has been responsible for RB’s healthcare and emerging markets focus.

The Benckiser family still own 10% and nominate one director.

4. Safety

Net gearing is a modest 40% and interest cover is massive. Funding is helped by getting better terms of trade from suppliers than customers receive, which means RB can run on negative working capital like supermarkets do.

Operations are highly cash generating, with surplus funds spent on acquisitions and share repurchases in recent years. There is a small pension surplus.

5. Valuation

RB’s historic price-to-earnings (P/E) ratio of 18, falling to 16 on forecast earnings, is at a discount to Unilever‘s 20 and 18 respectively. Much of the discount is due to the drag of RB’s pharmaceuticals business, and a disposal might eliminate it.

Though the sector has been buoyed by investors seeking safe yields, perhaps surprisingly RB’s P/E has often been higher, and its yield lower than the current 3%.


RB’s defensive qualities and safe dividend make it an attractive cornerstone share. It has been catching-up in emerging markets, though its pharmaceuticals business is a headache.

If you’re looking for other cornerstone shares for your portfolio, I recommend you have a look at ‘Five Shares to Retire On‘, an exclusive report from the Motley Fool.  It describes five companies with dominant market positions, strong balance sheets and robust cash flow that could easily form the core of your portfolio. You can download it by clicking here — it’s free.

> Tony owns shares in Reckitt Benckiser and Unilever. The Motley Fool has recommended shares in Unilever.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

This FTSE 250 stock is up 30% in July! Should I buy it now?

This FTSE 250 technology stock has seen its share price rise by 30% already in July. Roland Head asks if…

Read more »

Investing Articles

Forget Rolls-Royce shares! I’d rather buy this FTSE stock

Despite Rolls-Royce (LSE: RR.) shares faring well in recent times, our writer explains why she would prefer to buy this…

Read more »

Investing Articles

Rio Tinto’s share price slumps following production update! Time to buy in?

Poor production news has pulled Rio Tinto's share price sharply lower again. Is the FTSE 100 mining stock now too…

Read more »

Investing Articles

Could investing £20,000 in a Stocks and Shares ISA make me a millionaire?

Ben McPoland takes a look at how many years it might take to grow a £20k Stocks and Shares ISA…

Read more »

Investing Articles

Are these 2 dividend stocks no-brainer buys for a winning portfolio?

Sumayya Mansoor takes a closer look at these dividend stocks to see if they can help her build wealth through…

Read more »

Investing Articles

Does a 35% price drop make Trufin one of the best AIM shares to buy now?

The Trufin share price has just fallen by over a third after Lloyds terminated a contract. Does this make it…

Read more »

Investing Articles

4% yield and 45% growth in 12 months forecasted! I love this passive income investment

Our author says this passive income investment is significantly undervalued with a generous dividend yield. It's at the top of…

Read more »

Woman sneaker shoe and Arrow on street with copy space background
Investing Articles

£5,000 in savings? Here’s how I’d start investing in FTSE shares today

Based on his own experiences, Paul Summers reflects on the steps he'd take if he wanted to begin investing in…

Read more »