Investec upgrades Reckitt after full year results

Investec upgraded Reckitt Benckiser to ‘hold’ from ‘sell’ and lifted the price target to 6,600p from 5,210p following the company’s full year results.

It said the 2015 numbers were comfortably ahead of both its forecasts and consensus expectations, led by another quarter of innovation-driven double-digit growth in Health, while mix, input cost tailwinds and strong cost control delivered better-than-expected margins in the second half.

The brokerage now forecasts organic sales growth of 5.1% in full year 2016, up from 4.2% previously and versus company guidance for between 4% and 5%.

It said Reckitt was one of the few companies in its coverage to be openly looking for acquisition opportunities, adding that this makes sense, given the company’s competitive advantage in consumer health.

“Reckitt also has a good track record in terms of bedding in acquisitions, extracting cost synergies and generating revenue synergies and step changing the innovation.”

However, it pointed out consolidation is an expensive business, noting Reckitt faces competitors with an equal appetite for these assets, which are in a similar position to generate synergies and are significantly bigger, “so any value destruction from bidding up has a relatively smaller dilutive impact”.

Investec highlighted the fact the Pfizer-Allergan deal is due to close in the second half of this year, noting the media speculation as to whether Pfizer’s consumer health business will come up for sale.

The brokerage reckons that in the event of a sale, Reckitt would be a likely bidder, but said that as things stand, any possible sale seems some way off with Pifzer indicating it will make a decision on this by end-2018.

At 0937 GMT, Reckitt shares were up 1.8% to 6,525p.