Friday 23 August 2019

Price is right for Durex-to-Nurofen big brand owner Reckitt Benckiser


Reckitt Benckiser now owns some of the bestknown consumer brands including vanish Photo: Bloomberg
Reckitt Benckiser now owns some of the bestknown consumer brands including vanish Photo: Bloomberg

David Holohan

Reckitt Benckiser was formed in 1999 through the merger of Reckitt & Colman and the Netherlands-based Benckiser.

The management team quickly established the company as one of the fastest growing in the sector while also focusing attention on completing several transformational acquisitions across the consumer health, hygiene, and home product categories.

Reckitt Benckiser now owns some of the best-known consumer brands, including Nurofen, Strepsils, Gaviscon, Durex, Scholl, Vanish, Dettol and Cillit Bang. Beyond proving adept at creating memorable advertising campaigns, these brands are also very big sellers and make up part of what management describe as 'ten power brands' which provide a significant portion of the overall company's profitability.

Earlier in 2017, Reckitt Benckiser completed the acquisition of Mead Johnson Nutrition Company. The transaction doubled the company's consumer health business and provided management with the world's leading infant nutrition company.

The deal also increased Reckitt Benckiser's exposure to China, which is now the company's second-largest market, despite not even making the top 25 just five years ago. As a result, management has increased exposure to developing markets that will have strong growth prospects in future years.

However, 2017 has also brought several challenges for the management team as the overall consumer goods sector is experiencing slowing growth due to own-brand products taking more shelf space. Reckitt Benckiser was also hit hard by computer hackers earlier in the year.

These negative developments have placed the share price under pressure, and it is currently trading at the lowest point it has been this year, declining by about 5pc since January. There have also been several senior executive changes in recent months, as some parts of the business had started to underperform. Despite the near-term challenges, there are several reasons for optimism. Several of the issues facing the company are one-time events which will be worked through and its most senior executives have decided to take a more hands-on role in the day-to-day operations in some of the underperforming divisions.

It is also worth noting that Reckitt Benckiser has a very strong culture of entrepreneurship and this has contributed to the company's ability to consistently generate stronger revenue growth than its closest competitors.

There is also a very attractive consumer health-care business which has been put up for sale by US-based Pfizer with an expected price tag of up to U$18bn, which would fit very well with the overall Reckitt Benckiser business structure. While the bidding process is likely to be competitive, Pfizer has amassed a very strong consumer products platform with brands which include Centrum, Anadin and Paracetamol.

Should Reckitt Benckiser be successful in acquiring the business, it would cement the company's position as a world leader in consumer-facing health and well-being products, as well as providing a platform for further growth.

With the prospects of a such an acquisition, coupled with management turning around the more challenged parts of Reckitt Benckiser, investors can invest in a company with a proven track record and buy shares that are now trading at a discount to its sector - which is a very unusual occurrence.

David Holohan is chief investment officer at Merrion Capital

Any investment commentary in this column is from the author directly and should not be seen as a recommendation from the Sunday Independent

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