Consumer goods group Reckitt Benckiser (LSE: RB) has seen a large upswing in demand for its products this year. That makes sense to me — the company has a range of coveted hygiene brands ranging from Dettol to Lysol. These have been even more in demand than usual during the pandemic.
However, recent news suggests vaccines from companies such as Pfizer and Moderna could soon be rolled out at scale. I expect that vaccines will affect the value of many UK shares. It could mean, for example, that pandemic-induced hygiene fears fall in the future. I think Reckitt Benckiser’s share price could be affected.
Hygiene demand is a big factor for Reckitt Benckiser’s shares
High demand for hand sanitizer and similar hygiene products this year has meant a seller’s market. That has helped the consumer goods giant. Its long-standing hygiene brands and reputation for quality enabled it to capitalise on increased buying. In its results last month, the company revealed that revenue in its hygiene division had grown 17% in nine months compared to last year. The growth continues to be strong. In the third quarter alone, hygiene sales showed an annual increase just under 20%.
No doubt the pandemic has heightened awareness around products from hand sanitiser to antibacterial wipes. I expect some of that new business to remain in the future, which could help the company. Many understandably cautious shoppers will stick to their pandemic purchase habits. But I expect that as vaccines become widely distributed, some shoppers will no longer buy as many Reckitt Benckiser products as they have this year. That suggests that next year’s results will be lower than this year.
Performance is uneven across the company
While the hygiene performance this year has been strong, other parts of the company have not done as well. Specifically, its problematic infant formula division continues to struggle with long-standing strategic issues. Additionally, the pandemic meant demand in parts of the vital Asia market was subdued. So far this year, the nutrition division has increased sales by just 1% compared to a year ago.
The infant formula business has been a headache ever since the company acquired it in 2017 from Mead Johnson. It already took a £5bn write down earlier this year related to the division. However, the purchase debt continues to weigh heavily on the balance sheet. Meanwhile, its underwhelming sales performance suggests that Reckitt Benckiser continues to face a challenge to fix the unit.
A fairly new chief executive is sharply focused on a transformation plan. This year has start well. While I expect some demand to fall away, the company’s well-known hygiene brands should still continue to perform well overall. But I expect the vaccine roll out will slow the demand for hygiene products that has boosted the company this year. On top of that, the infant formula business is weak. With a price-to-earnings in the high teens, the shares do not look cheap to me.
christopherruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.