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Reckitt Benckiser Group Plc Is A Buy For Me

I’ve always been a fan of companies that own a diversified range of brands.

Indeed, for me, a portfolio of brands says that a company has the potential to tap into emerging market growth as well as maintain a degree of stability should one or two brands become unpopular for whatever reason.

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So, Reckitt Benckiser (LSE: RB) (NASDAQOTH: RBGLY.US) is a company that I’ve admired for a while.

Indeed, its most recent update was very encouraging, with the company releasing half-year results at the end of July.

They showed that like-for-like sales had grown by an impressive 5% over the period, with gross margins improving significantly to 58.7%, being 2.3% higher than in the comparative period in 2012.

Furthermore, adjusted net income was up 6% versus 2012 and, encouragingly for income-seeking investors like me, the interim dividend was raised by 7% to 60p per share, giving a yield of around 3% at the current share price of £45.32.

In addition, comments made by the CEO, Rakesh Kapoor, showed that the company’s strategy of focusing on 16 ‘powermarkets’ such as China is bearing fruit. Indeed, Reckitt Benckiser is investing vast swathes of capital in these markets to increase awareness of its brands, with the long-term aim being to create a substantial amount of customer loyalty in such markets.

Of course, the company alludes to the challenging nature of trading conditions it experienced in the first half of the year. However, it confirmed that revenue growth of 5-6% for the full-year is achievable, with operating margins being maintained, too.

This gives me confidence that Reckitt Benckiser is not discounting its products too heavily or accepting lower margins so as to get a foothold in emerging markets. Indeed, the lack of margin squeeze shows that its brand investment is performing strongly.

Although the company is performing well, shares do not appear to be particularly expensive. They trade on a price-to-earnings (P/E) ratio of 17, which compares favourably to the household goods and home construction sector (in which Reckitt Benckiser sits) which has a P/E of 18.6.

So, in my view Reckitt Benckiser looks to be worth buying as a result of its strong performance, vast potential, reasonable price multiple and the diversity of its brand portfolio.

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> Peter does not own shares in Reckitt Benckiser.

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