The FTSE 100 has rebounded from the Covid-19 recession quicker than I expected, breaking back through 6,000 points already. It’s still around 20% down so far on 2020 though. But investors with a defensive FTSE 100 share or two in their portfolio will have less to worry about.
I rate Reckitt Benckiser Group (LSE: RB) as a very defensive FTSE 100 share indeed. The maker of disinfectants and cleaning products is a very good thing to have around during an infectious pandemic. That’s in terms of both health and investment reasons. Reckitt Benckiser shares have resisted the market collapse, and have actually gained 9% since the beginning of the year.
Reckitt Benckiser, which produces Dettol and Lysol, made a couple of very important announcements in April.
“Under no circumstance should our disinfectant products be administered into the human body (through injection, ingestion or any other route),” said the first. That was in response to the suggestion that disinfectant “gets in the lungs, it does a tremendous number on the lungs,” from President Trump.
Top FTSE 100 share
Demand for the company’s products, hopefully for conventional and safe uses, has soared. The second important announcement was Thursday’s first-quarter update. It revealed a 10.9% rise in sales of hygiene products, plus 13.1% growth in health product sales. Overall sales were up 12.3% in the quarter.
Total like-for-like sales growth came in at 13.3%, and the increased demand is stretching the firm’s capacity. These figures are well above analysts’ expectations of 5.3% sales growth. And that doesn’t happen with a FTSE 100 share too often these days.
Some of the demand will be down to stockpiling. Chief executive Laxman Narasimhan told us that “the split between defensive buying and higher levels of underlying consumption is unclear.”
But it looks like the demand has not yet subsided, as he added: “The near-term operational challenges to meet additional demand and handle lockdown conditions, with the associated costs, are also likely to continue for some time.”
This short-term boost is all very well, but I’m only interested in a FTSE 100 share if it has long-term potential. Reckitt Benckiser is currently on a strategy targeting “mid-single-digit organic revenue growth, mid-20s margins and 7-9% EPS growth.”
And in the medium term, the company said: “Our outlook for sustained mid-single-digit organic revenue growth and mid 20s margin by 2025 remains unchanged.”
Reckitt Benckiser doesn’t offer the cheapest FTSE 100 share, with P/E multiples up around 20. That’s in keeping with similar long-term defensive stocks, like Unilever. Unilever shares though are a bit cheaper than Reckitt Benckiser’s, on P/Es of 18 to 19.
But that doesn’t alter my conviction that Reckitt Benckiser shares are good to buy for the long term. Whatever happens in the coming months as the virus crisis develops, I reckon Reckitt Benckiser will be growing its earnings and paying dividends for decades to come.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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.