The regulator’s new listing rules get a mixed reception
Within the FTSE 100 ranks, the recent travails of food retailers Tesco (TSCO) and Morrisons (MRW) means the list of truly defensive names may be dwindling. Yet the blue-chip index is still home to a number of ‘expensive defensive’ companies which are highly prized for their relatively dependable earnings and a rising dividends. The one drawback is their lofty ratings leave them exposed to any minor disappointment, as evidenced by nasty tumbles over the summer amid emerging market growth concerns and currency confusion.
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One firm which may now be worth a fresh look is Reckitt Benckiser (RB.), especially since the £34.7 billion cap is reassessing the role played by its pharmaceuticals operation. The stock is cheaper than SABMiller (SAB), Diageo (DGE) and Unilever (ULVR), peers all cherished by investors for their reassuring profit profiles.
Strategic review
Cillit Bang-to-Mucinex owner Reckitt Benckiser brings brand strength and global reach yet market sentiment toward the health, hygiene and home products play worth remains mixed with only nine of 17 brokers rating the stock a ‘buy’. The sceptics may have to reconsider after the announcement (22 Oct) of a strategic review of its pharmaceuticals division (RBP).
Investors have struggled to value the RBP arm following the launch of generic tablet alternatives to opioid painkiller Suboxone, a development which prompted Reckitt to cease making tablet versions in the face of likely price erosion. The Slough-headquartered concern says it is considering ‘all options for maximising value’ for shareholders. While a sale is no foregone conclusion, it would remove a valuation hangover and could potentially fetch Reckitt anywhere between £2.5 billion and £5.5 billion.
A disposal offers a potential share price catalyst. The cash proceeds would also enable Reckitt to acquire and further invest in its higher-margin ‘Powerbrands’ such as Clearasil, Harpic, Dettol, Durex and Nurofen.
Besides the potential for corporate activity, underlying trading has the scope to positively surprise. Once RBP was excluded arm, Reckitt’s (22 Oct) third-quarter update revealed better-than-expected like-for-like sales growth of 5%, driven by emerging markets and ongoing progress in Europe and North America. Chief executive officer Rakesh Kapoor reported ‘excellent’ performances from health and hygiene brands ranging from Scholl to Harpic and Vanish.
The solidity of this performance against a still-uncertain macroeconomic backdrop suggests a forward earnings multiple of almost 18 times is far from demanding.
