Reckitt share price crashes 10%! Is it now an unmissable FTSE bargain?

Hopes that the Reckitt share price would spring into life have been dashed by today’s full-year results. So has it fallen into bargain territory?

| More on:
Asian man looking concerned while studying paperwork at his desk in an office

Image source: Getty Images

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.

The floundering Reckitt (LSE: RKT) share price desperately needed a lift from this morning’s full-year results but it didn’t get it.

Today’s (28 February) announcement fell flat, with Q4 revenues down 1.2% and general performance weaker than investors had expected. Reckitt did post a 3.5% rise in full-year like-for-like revenues to £14.6bn, but it wasn’t enough for markets. The stock is down almost 10% as I write this.

Long-term investors have little to show for their loyalty and now they’re suffering again. Reckitt shares are up a meagre 0.14% over one year and 1.14% over five years. That’s marginally better than FTSE 100 rival Unilever, down 6.64% over one year and 1.82% over five, but it still a rotten return, even with dividends.

The personal care group has slipped off my radar in recent years. While I bought Unilever in June last year (and often wish I hadn’t), it’s a long time since Reckitt tempted me. But has that now changed? Let’s find out.

Disappointing

This has never been a great dividend stock. After today’s share-price drop, the yield has jumped from 3.14% to 3.47%. That’s better but still below the FTSE 100 average of around 3.9%. There was some good news here, though, as the board hiked the full-year dividend by 5% to 192.5p per share.

CEO Kris Licht called 2023 “a year of progress for Reckitt”, hailing a good trading performance in its Health and Hygiene division, while Nutrition “began rebasing and held market leadership in the US”.

Positives included driving gross margins back to historical levels, increased investment in its brands and innovation, and strong free cashflow.

Licht reminded disgruntled investors that Reckitt has “significantly increased cash returns to shareholders”, including a new, sustainable share buyback programme. Yet even he admitted that Q4 performance was “unsatisfactory”.

So much for 2023. What can we expect going forwards? Reckitt still boasts an array of established everyday brands like Air Wick, Harpic, Dettol and Nurofen. It needs to work hard on Nutrition, though, which is still reeling from an 11.9% drop in sales in Q3. This was largely down to a “rebase” in demand, as sales of disinfectant brands like Lysol and Finish fell as the pandemic receded. Nutrition should return to growth in the second half of 2024, Licht said.

Now we need some growth

Last October, broker Berenberg downgraded Reckitt and said it was “difficult to identify a catalyst” for a share-price recovery. Reading over today’s results, I’m not sure I can find one today. It may get support from a broader economic recovery, once inflation is defeated and interest rates start falling, but that applies to a whole heap of companies.

Like Unilever, Reckitt has also been hit by emerging market volatility, and a recovery here would be welcome. At least China, India and Latin America offered some solace.

Nobody wants to end the financial year on a low, but that’s what Reckitt has just done (and then some). I’m particularly concerned by reports of tough competition in the US eating into revenues from this key market.

Reckitt trades at 17.03 times, compared to the 22 times I was used to. I wouldn’t call it a bargain, though, let alone unmissable. I’ll stick with Unilever but won’t be adding Reckitt to my portfolio.

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.

Harvey Jones has positions in Unilever Plc. The Motley Fool UK has recommended Reckitt Benckiser Group Plc and Unilever 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.

More on Investing Articles

Bronze bull and bear figurines
Investing Articles

1 dividend superstar I’d buy over Lloyds shares right now

I sold my Lloyds shares recently and have used some of the proceeds to buy more of this high-yielding dividend…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£20,000 in savings? Here’s how I’d try to turn that into a £43,960 annual passive income!

Investing a relatively small amount into high-yielding stocks and reinvesting the dividends can generate significant passive income over time.

Read more »

Sun setting over a traditional British neighbourhood.
Investing Articles

Could I make shedloads of dividend income from 8,025 Kingfisher shares?

Some shares are better than others when it comes to earning dividend income. So how does this FTSE 100 do-it-yourself…

Read more »

Illustration of flames over a black background
Investing Articles

Are Thungela Resources shares brilliant for passive income?

There’s one share that’s recently been an excellent source of passive income. But ethical investors won’t want to touch the…

Read more »

Edinburgh Cityscape with fireworks over The Castle and Balmoral Clock Tower
Investing Articles

1 growth stock to consider buying at $1 that could be the next Nvidia

Attempting to find the next great growth stock may be like searching for a needle in a haystack. Still, here's…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Should I buy these UK shares for my portfolio?

This Fool has been searching for ways to capitalise on the commodity moves via UK shares. Here’s what he’s watching.

Read more »

Illustration of flames over a black background
Investing Articles

Just released: April’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£9,000 in savings? Here’s a FTSE 100 stock I’d buy to target a £30,652 annual second income!

Our writer highlights one top FTSE 100 share that he thinks could help create a portfolio large enough for a…

Read more »