What is most noticeable about Reckitt Benckiser’s performance over the past year or so is its consistency. Most global consumer groups have stumbled in one market or another, but RB, as it prefers to be called, has moved revenues ahead in all three of its core divisions.
The company decided a few years ago to focus on healthcare and hygiene. These are must-have products: even in difficult emerging markets, people do not stint on flu remedies or disinfectants — note the strong performance in hygiene of its pest control products in Brazil, despite the battering that country’s economy has taken.
The process of spinning off its Indivior specialist pharmaceuticals business took place at the end of last year and investors will have little to complain about, the shares having moved strongly ahead this year. RB has made clear that the food brands within its portfolio division, not well known in the UK, are non-core, but they generate plenty of cash and the company is in no rush to sell.
RB is undergoing one of those occasional corporate spring cleanings, this one codenamed Project Supercharge, to take out unnecessary cost, and it forecast yesterday that savings would come in at the top end of the estimated £100 million to £150 million. This is driving an improvement in margins, up 160 basis points to 21.9 per cent in the first half, although this is likely to slacken off in the second. It is also benefiting from low input costs, with cheaper raw materials such as plastics. Some of this margin improvement is being invested back into the core brands.
Hygiene and home products, such as Harpic and Lysol, inevitably are lagging behind healthcare. The long-term picture is favourable because RB is benefiting from an ageing population in the developed world and growing prosperity in emerging markets.
The company is confident enough to up its targets for the current year in terms of revenue and margins. The only cavil I would have is that much of this appears to be in the share price, ahead 85p at £59.93 and selling on 25 times earnings. Given the progress since the start of the year, I would be inclined to lock in some profits.
MY ADVICE Take profits
WHY Shares are very highly rated. The growth story is intact and RB is in lean shape, but investors should take
Revenue £4.36bn Dividend 50.3p
When David Squires arrived as the chief executive of Senior at the start of last month, he inherited a business in good form and set to gain from higher spending in the aerospace market, but his first halfway figures are a bit mixed.
This time a year ago, Senior and other global engineers were suffering from the strong pound. This time, the higher dollar is a benefit. Take out this and the contribution from acquisitions and revenues were flat and profits a bit lower.
There are two reasons. Senior’s Flexonics division supplies the oil and gas industry, as well as making parts for off-road vehicles. Given the fall in commodities prices, customers in agriculture and mining have been running down stocks.
In the aerospace division, the company is stepping up new products for the latest range of passenger craft, but orders have yet to come through and Senior, unlike some others, takes the additional cost through the P&L immediately.
The shares, off 8¾p at 269p, have come back a fair bit since I advised taking profits in January. On 13 times’ earnings, this does not look like a bad time to start buying again.
MY ADVICE Buy long term
WHY Shares have come back and orders will pick up again
Revenue £435m Dividend 1.84p
The accident at Alton Towers at the start of June is one of those entirely unpredictable events that are impossible to factor into any investment analysis. Yet though traumatic, its effect on Merlin Entertainments is not that great.
Yesterday’s profit warning suggested it would take more than £40 million off an ebitda line that will approach £400 million for 2015. This will be partially offset by £10 million of lower financing costs after the issue of a eurobond at favourable rates.
Alton Towers, and to a lesser extent Thorpe Park, failed to bounce back as fast as might have been expected at the start of the summer holidays, prompting yesterday’s profit warning only three days ahead of the interim figures.
Alton Towers is just one theme park in one division of Merlin. The other two are doing well enough. The Legoland parks generated a 6 per cent rise in revenues in the first half, mainly from the two American sites. The performance of the Midway attractions, including Madame Tussauds and the Sea Life aquariums, was more muted, with revenues up 2.9 per cent. These were affected by travel restrictions on Chinese visitors to Hong Kong and the weakness of the euro, which discouraged visitors from the Continent to London while making the eurozone more attractive to British residents.
None of the above changes the growth story at Merlin. I recommended the shares in the spring; off 18p at 405p, they are not much changed from then and, even on 24 times’ earnings, are still a good long-term bet.
MY ADVICE Buy long term
WHY Growth prospects from opening new attractions
£40m to £50m profit from theme parks
And finally . . .
Another day, another disappointment for investors in Dialight. This has some potentially world-beating LED lighting technology, but has proved accident-prone. There was a profit warning last month, relating to falling orders from the oil and gas sector. Michael Sutsko, the new chief executive, announced a halving of interim profits and the axing of the dividend and the battered shares lost another 16 per cent. One day Dailight will come good, but even at this level the shares are only for the brave.
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