- Business simplification plan unveiled
- Home care and nutrition brands up for sale
- Full year sales guidance cut
Shares in Reckitt Benckiser (RKT) rallied 4% to £45.86 after the consumer goods powerhouse unveiled plans to sell a raft of non-core homecare brands and said it was reviewing options for its troubled infant formula business.
In a similar strategy to many of its rivals including Unilever (ULVR), Reckitt is now planning to streamline and focus on the brands which have the best opportunities.
The FTSE 100 firm has struggled for consistent performance in recent years and its strategic pivot follows a string of disappointing updates as well as litigation concerns around the safety of its Enfamil Premature 24 baby formula.
SHARPEN AND SIMPLIFY
The Dettol-to-Durex maker said it would look to sell brands including Air Wick, Mortein, Calgon and Cillit Bang, which generated nigh-on £2 billion of sales in full year 2023, by the end of 2025, and return the sale proceeds to shareholders.
Mead Johnson Nutrition, which makes baby formula brand Enfamil and allergy brand Nutramigen, is also now considered ‘non-core’ and a sale of the unit would draw a line under a sorry episode in Reckitt’s history.
Acquired for $18 billion in 2017, Mead Johnson has proved a disastrous, value-destructive deal for Reckitt, which has come under pressure from top shareholders to sell the division following litigation and other setbacks.
POWERBRANDS TO POWER GROWTH
This major overhaul will leave Reckitt focused on its portfolio of market-leading health and hygiene ‘Powerbrands’ including Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Durex and Veet.
‘These high-growth, high-margin Powerbrands are beloved by consumers and hold leading market shares in categories with significant headroom for long-term growth’, insisted the company, which also plans to ‘expand and accelerate’ its cost-cutting drive.
Alongside the restructuring update, Reckitt posted first half results which included a cut to full year like-for-like sales growth guidance from 2% to 4% to a 1% to 3% range.
The downgrade reflects temporary supply disruption caused by a recent tornado in Indiana and its impact on the nutrition business.
THE EXPERT’S VIEW
Dan Coatsworth, investment analyst at AJ Bell, commented: ‘Selling off non-core brands and simplifying its management structure could lead to higher group profit margins. The market has welcomed the news, sending the share price higher.’
Coatsworth added: ‘The focus now turns to whether Reckitt becomes a takeover target once it has completed the restructuring. Currently, prospective bidders might be put off by the potential liabilities linked to legal action around the safety of its baby formula products. Once there is clarity on this issue and the other non-core brands are sold, a more streamlined Reckitt would certainly look appealing to rivals, particularly if the share price stays at bargain-basement levels.
‘The stock recently traded on its lowest multiple of forward earnings since 2012. Trading in the region of 13 times earnings, this is roughly half its peak rating seen in 2020. It’s rare for a consumer brand powerhouse to trade so cheaply and it’s almost certain trade buyers or private equity have the stock on their radar.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
