Consumer goods titans Reckitt Benckiser (LSE: RB) and Unilever (LSE: ULVR) have benefitted hugely from the fall in sterling since last year’s EU referendum. But with the FTSE 100 riding high and Theresa May calling a snap election, would it now be wise for shareholders to exit their positions while they’re ahead?
FX beneficiary
As far as price momentum is concerned, Reckitt’s story is a thing of beauty. Yours for 3517p exactly five years ago, shares in the £51bn cap have more than doubled since with very few hiccups along the way.
Today’s Q1 update from the company is unlikely to ruffle any feathers, even if sales were rather flat. Trading was in line with expectations and total revenue came in at £2.64bn — a 15% improvement as a result of favourable exchange rates. The company’s Health division was a standout performer thanks to brands such as cold and flu medicine Mucinex and Durex.
On the downside, trading in Europe and North America was subdued with like-for-like revenue declining 2%. Reckitt’s Home and Portfolio categories also suffered. Despite like-for-like sales in emerging markets rising 4%, performance continued to be impacted by the company’s recent troubles in Korea when an active ingredient in a humidifier sanitiser has been linked to almost 100 deaths.
Elswehere, its questionable acquisition of baby formula business Mead Johnson remains “on track” and should be completed by the end of the third quarter. A strategic review of its Food business — likely to fund the aforementioned purchase — is also underway.
While reflecting on “challenging” macroeconomic conditions, CEO Rakesh Kapoor stated that Reckitt’s growth trajectory was expected to get stronger during 2017 and that the company was confident of achieving its net revenue target of 3% like-for-like growth for the full year.
Overall, a mixed update from the FTSE 100 giant. Shares were down almost 2% in early trading but have since recovered.
Strong sales
As an investment, industry peer and £112bn cap Unilever has been just as consistent as Reckitt. Priced just over £20 five years ago, shares have climbed almost 100% since with yesterday’s trading update suggesting this positive trajectory is likely to continue.
Sales over Q1 rose 6.1% to €13.3bn including a positive currency impact of 2.4% as a result of Unilever’s vast international presence. Emerging markets were particularly strong with underlying sales growth of 6.1% recorded.
For the year, Unilever expects to post underlying sales growth within the 3%-5% range while improving operating margins. Dividend hunters will also be encouraged by the 12% rise in its quarterly dividend, even if this might be as much a reaction to the recent approach from Kraft as it is a reflection on management’s confidence in the company’s outlook.
Bottom line?
With both companies trading on around 22 times earnings for 2017, shares in Reckitt and Unilever continue to be expensive but perhaps reassuringly so. Their enviable portfolios of brands coupled with superb returns on capital mean that, while neither presents as a screaming buy at the current time, both should dip less than most if markets become jittery. Indeed, if history is any guide, any economic or politically-generated wobbles should be seen as an opportunity to top up holdings in either company.
For now however, both Reckitt and Uniliver are a hold for me.
