Berenberg hails Reckitt Benckiser's good timing in Mead acquisition

Berenberg sounded a confident note on the prospects for Reckitt Benckiser in 2017, telling clients it expected to see a steady improvement in the company's like-for-likes throughout the year, with trading at its recently acquired US rival Mead also likely to improve.

Hence, the analysts judged that the market concerns on both those fronts which had been weighing on the shares would be adressed in short order.

That led them to reiterate their 'Buy' recommendation and 8,500 target price on the shares.

The broker also noted how stock in the consumer goods giant was trading at a 10% discount to its sector peers in terms of its estimated 2018 price-to-earnings multiple and free cash flow yields (including Mead), despite the potential for it to deliver total shareholder returns of roughly 40% over the next two years.

Reckitt itself was still grappling with the same headwinds facing all its competitors, a late Easter and India's demonetisation gambit. On top of that, the loss of sales in South Korea and the failed Scholl innovation would hurt comparatives in the first three months of 2017.

Yet by the backalf of this year top-line growth would again be running at 5%, boosting full-year growth in its like-for-likes to 4%.

As for Mead, North America and Europe were expected to weigh on Mead's performance until at least the third quarter of 2017.

However, trade investments in China were seen stabilising in the second half while Latin America should improve starting from the first quarter, Berenberg said.

The US would also stabilise eventually for Mead, the broker added, congratulating Reckitt for the good timing on the acquisition.

"We think the deal is well timed for Reckitt, coming when Mead was actively seeking a buyer to address its scale issues and d the probability of a counter."