In the first of a new series of investor seminars in London last week, Reckitt Benckiser sought to refocus attention on the FTSE 100 consumer goods group’s core business.
Amid a restructuring and sales process, complicated by costly litigation in the United States and renewed macroeconomic uncertainty, Kris Licht, Reckitt’s chief executive, introduced a presentation led by Ryan Dullea, the chief growth officer, and involving the four category leaders across germ protection, self-care, household care and intimate wellness.
The two-hour seminar last Thursday, followed by networking drinks, was designed to showcase Reckitt’s core business of 11 power brands, which generate more than 80 per cent of its core £10.3 billion net revenue. They include Finish, Dettol, Durex, Mucinex, Vanish, Veet and Nurofen.
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The presentations were also to bolster the City’s confidence that “core Reckitt” and its “world-class” portfolio of brands can generate like-for-like sales growth of 4 per cent to 5 per cent a year. The brands are No 1 in almost every segment they “play in”, with each category growing by mid-single percentage digits in the past five years. “The No 1 thing to know about Reckitt and core Reckitt is that we are all about power brands,” Licht said.
Reckitt, based in Slough, Berkshire, is one of the world’s biggest consumer healthcare groups, formed through the merger of Reckitt & Colman and Benckiser of the Netherlands in 1999. In recent years a reputation as a “stock market darling” has been lost to inconsistent trading updates and a series of problems.
Following shareholder frustration with the performance of Mead Johnson, Reckitt’s infant nutrition business acquired for $18 billion in 2017, stake-building last year by the US activist Eminence Capital and the appointment of the former Sky boss Sir Jeremy Darroch as chairman, Licht, 48, set out plans last July for a strategic review of Mead Johnson, as well as a possible sale of “non-core” homecare brands such as Cillit Bang and Air Wick.
Reckitt is instead focusing on its portfolio of “high-growth, high-margin power brands” and has been simplifying the group, taking out layers of management to speed up decision-making and reducing headcount and costs.
Dullea is the executive helping Licht lead Reckitt to a healthier future. The two worked closely together when Licht previously ran Reckitt’s health business.
The last time Reckitt updated the market, at its first-quarter results in April, the shares had been among the session’s biggest fallers on the FTSE 100. Then Reckitt had indicated the sale of a portfolio of homecare brands could be delayed beyond the end of the year by “difficult” market conditions and posted weaker-than-expected first-quarter trading.
Last week’s seminar, though, was welcomed by the City, with the shares nudging up 0.5 per cent, despite management issuing no new material financial or trading information.
Analysts at Barclays told clients afterwards that Reckitt has “bright prospects ahead” once it exits its essential home and Mead Johnson nutrition businesses and resolves litigation affecting its US infant formula operations, but added that “this still feels some way off”.
“The [event] was a reminder of the potential prize,” Barclays said.
Those at UBS noted the “embryonic stage” of several of Reckitt’s categories in emerging markets and its proven record of creating categories from scratch, such as laundry and air sanitiser.
Reckitt trades at a large discount to peers, on a 2025 enterprise value to earnings ratio of 10.5 times. That compares with about 17.7 times at P&G, 16 times at Haleon, the FTSE 100 consumer healthcare company, and 14.7 times at Unilever.
But with Reckitt’s like-for-like sales growth and margin prospects above the global industry average, UBS said the core business should trade at a premium to its global US and EU peer group. A 5 per cent to 15 per cent premium would effectively imply that the rest of Reckitt, the essential home and Mead Johnson businesses, currently have a negative enterprise value of up to £7 billion.
A further potential upside for investors is the prospect of consolidation in the market.
A number of large standalone consumer health groups have been created in recent years, such as Haleon, spun off from GSK on the London Stock Exchange in 2022, and Kenvue from Johnson & Johnson in 2023 in New York. It has led to speculation of large-scale mergers and acquisition.
Analysts at Citi, though, tempered expectations, telling clients last week that smaller deals for certain brands and segments were more likely than big takeovers.
Healthy balance sheets and interest from the likes of Procter & Gamble suggest there is room for acquisitions, but competition concerns among regulators and diverse portfolios make large deals unlikely, Citi noted.
Advice Hold
Reason Core business growth and market consolidation potential for patient investors following restructuring