Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at Reckitt Benckiser (LSE: RB)
What is the sustainable competitive advantage?
Reckitt Benckiser’s main competitive advantage lies in its portfolio of brands. Specifically, Reckitt produces some of the UK’s most recognisable household brands, such as Nurofen, Finish and Vanish, each of which has its own following and established customer base.
Indeed, due to the reputation of each one of Reckitt’s brands, customer loyalty is strong, allowing the company to set the prices on its products — and maintain a wide profit margin.
For example, thanks to this pricing power, Reckitt has been able to achieve a net profit margin of around 19% a year for the past three years.
In comparison, Unilever, which is almost twice the size of Reckitt, has seen its net profit margin compressed to 10% over the same period, as the company slashes costs to compete with its rivals.
Furthermore, while many of Reckitt’s peers are seeing their market share eroded by own-brand products, such as the Tesco value range, it would appear that Reckitt’s sales are relatively unaffected.
Specifically, the company’s sales have grown 46% during the past five years and the firm’s profit before tax margin has expanded from 23% to 25% during the same period.
Rising sales and expanding margins over a five-year period, especially with the current economic headwinds, are great traits in a buy and forget share.
Company’s long term outlook?
Reckitt’s performance over the past five years gives me a lot of confidence in the company’s ability to grow over the longer term. In addition, the company has been around for nearly two centuries, so Reckitt has plenty of history behind it and has certainly shown that the company can grow and change with the times.
Moreover, it is likely that demand for Reckitt’s products will only grow over time as the world’s population expands. Furthermore, as the global economic recovery gets under way, it is likely that more consumers will ‘trade up’ to Reckitt’s premium products.
Foolish summary
All in all, Reckitt’s history, sales growth over the past five years and strong, consistent profit margins lead me to concluded that Reckitt Benckiser is a good share to buy and forget.
