1 UK share I’d buy in my ISA for 2022

Our writer explains why he reckons this UK share could perform well in future and what makes him consider adding it to his ISA.

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In recent years, UK shares have missed out on some of the sorts of gains seen in other leading markets. But many British companies have international footprints that can expose them to global economic trends, whether positive or negative.

One UK-based multinational I think could benefit from such trends is health and hygiene specialist Reckitt (LSE: RKT). Below are three reasons I would consider buying Reckitt for my ISA in 2022 – and one risk I see.

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Booming demand for hygiene products

Reckitt is well-positioned to benefit from one of the lasting behavioural shifts I think the pandemic brought about. It owns key hygiene brands such as Dettol and Lysol. I think higher demand for these is here to stay. That could be good news for Reckitt’s revenues. Given the premium nature of the Reckitt brand portfolio, it could also be very good news for its profits.

For the first nine months of its current financial year, the company reported that like-for-like hygiene sales were 12.7% higher than in the prior year. Reported revenues were up 5.9%, reflecting changes in the business structure. Given that the prior year already saw strong demand, I regard that as a very encouraging result.

Moving on from infant formula challenges

A key investor concern about Reckitt over the past few years has been the financial impact of its ill-starred 2017 acquisition of an infant formula business from Mead Johnson. That cost the company $16.6bn. It was definitely not money well spent.

But after massive financial writedowns and the sale of most of the business, I think Reckitt is now moving on from the impact of the deal. The financial damage is receding into history. Management can now focus on the growth opportunities in the rest of Reckitt’s business rather than the difficulties it faced in the infant formula division. I see that as a positive factor for the Reckitt share price in 2022 and beyond.

New market opportunities

With its global footprint, Reckitt can benefit from huge demand growth and increasing disposable income in developing markets such as China and Indonesia. It has been experimenting with growing its online commerce business. In its most recent quarter, such online revenues were 86% higher than they had been two years before.

I am not fully persuaded by the strategy of mass consumer goods manufacturers selling directly to end users. I fear it might damage their existing relationships with retailers, hurting sales. But I do think the online commerce growth is good news in that it shows how Reckitt is trying to grab new market growth opportunities. That ambition could drive sales and profits both in developing markets and established ones.

One risk with these UK shares

Although I am bullish on Reckitt, one risk I see is inflation. Mounting ingredient prices could push up the company’s costs and hurt profits. In October, Reckitt said that such inflation “continues to be challenging” and was running at around 10%.

But the company reckons it can manage such inflation without hurting its profit margins. I agree that may be possible, as its premium brand portfolio gives Reckitt pricing power. That will hopefully enable the company to pass such inflation on to consumers in the form of higher prices. So despite the risk, I would consider adding Reckitt to my ISA in 2022.

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Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Reckitt plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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