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1 FTSE 100 growth stock I’d hold for 25 years alongside Unilever plc

Fast-moving consumer goods company Reckitt Benckiser Group (LSE: RB) updated the market this morning with third-quarter trading, and it’s been a busy period.

The firm completed the disposal of its food division raising around $4.2bn, which it ploughed into reducing borrowings, and signed off the acquisition of Mead Johnson Nutrition Company.

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Today’s figures reveal revenue up 30% year-on-year during the quarter, and up 20% for the year so far. But excluding exchange rate gains and the contribution from Mead Johnson, like-for-like figures fell 1% over both periods. Part of that decline is down to the effects of a cyber-attack that disrupted business, and from which the firm is still to recover fully.

Transforming for growth

The directors reckon they’ve made decent progress over the past five years transforming the firm’s portfolio. Consumer health now accounts for around 50% of the total business and hygiene products the other half. The next phase of the plan involves separating the business into two business units – formally recognising the health/hygiene split. Each unit will have its own president and will be accountable for its business “from innovation, through brand development and supply to the customer”.    

I can’t help thinking that such a move will make it easier to sell off either the health or the hygiene unit as a standalone business in the future if the directors believe such a move could be the best way to enhance value for Reckitt Benckiser’s shareholders. However, there’s no sign of such a move on the horizon, saying: “The two Business Units will together form one RB – a single company devoted to delivering on our mission of creating healthier lives and happier homes”.

The firm’s restructuring and continued focus on growth keep me optimistic about its prospects. City analysts following the firm expect earnings to grow 8% this year and 12% during 2018, which compares well with another FTSE 100 consumer goods giant Unilever (LSE: ULVR). During 2018, analysts expect Unilever to deliver 10% growth in earnings after a 22% rise during 2017.

Growth ahead of markets

Back in July with its half-year results, Unilever told us that its financial performance in the first half of the year showed “continued growth well ahead of our markets and a substantial step-up in profitability despite the persisting volatile global trading environment”. The directors claim to be accelerating the transformation of the firm into a “more resilient, more competitive, and more profitable business”, which chimes with what’s going on at Reckitt Benckiser.

The company is expecting to report accelerating growth for the second half of 2017 due to executing the directors’ plans for change and because of increased brand and marketing investment. The directors reckon the improvements will show up in an operating margin at least 100 basis points higher, in strong cash flow, and in underlying sales growth of 3-5%.

I think Reckitt Benckiser and Unilever are both good candidates for holding for the long term, perhaps as long as 25 years or more.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Reckitt Benckiser. 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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