Why Reckitt Benckiser Group plc’s Investment Plans Should Supercharge Growth

Today I am looking at why I believe Reckitt Benckiser Group‘s (LSE: RB) investment drive should push earnings skywards in the coming years.

Acquisition hunt set to continue

Reckitt Benckiser has long identified the consumer health segment as a driver for future growth, and chief executive Rakesh Kapoor commented during this month’s interims how he was “particularly pleased with how our focus on consumer health is driving growth and outperformance, supported by larger innovation roll-outs.”

The business saw like-for-like sales growth, excluding its Reckitt Benckiser Pharmaceuticals division, rise 4% during January-reckitt.benckiserMarch. Even though growth was printed in all regions, the firm’s strong performance was driven by solid turnover expansion in emerging markets.

In its Latin America, Asia Pacific, Australasia and China (LAPAC) region, underlying sales increased 8%, while in Russia, the Middle East and Africa (RUMEA) these advanced 4%.

Heavy investment in introducing new product lines and developing existing brands has proved a key driver in moving sales in the right direction. The introduction of its Megared omega-3 krill oil product across Europe proved a huge success during the first quarter, for example, while its Durex condom brand benefitted greatly from the roll-out of its Embrace pleasure gels.

In addition to organic expansion, Reckitt Benckiser has also made good on its plan to continue splashing the cash on the acquisition front. Indeed, the company purchased the K-Y brand of sexual lubricants from Johnson & Johnson in March, a move designed to build its presence in the sexual health market. According to Reuters, Reckitt Benckiser shelled out in the region of £400m to acquire the business.

Bolstered by its ability to throw up plenty of cash — net cash from operating activities rose more than 12% last year, to £2.1bn — I expect Reckitt Benckiser to continue to hoover up lucrative businesses in the highly-fragmented consumer health arena.

Earnings growth expected to return in 2015

Reckitt Benckiser has seen growth gradually decline in recent years, and City analysts expect the firm to punch its first earnings dip for many years in 2014 with a 5% decline. But this is expected to represent a temporary glitch, however, with a solid 5% bounceback pencilled in for next year.

These figures leave the household goods giant changing hands on P/E multiples of 18.6 and 17.7 for 2014 and 2015 respectively, making it — at face value at least — an expensive stock selection when viewed against a forward average of 17.1 for the complete household goods and home construction sector.

Still, in my opinion Reckitt Benckiser’s ability to keep growth rolling across all regions fully justifies this premium. Led by a clutch of market-leading labels across a multitude of product sectors, and supplemented by a steady stream of acquisitions, I believe that the firm is a fantastic selection for those seeking juicy growth prospects.

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Royston does not own shares in Reckitt Benckiser.