Reckitt Benckiser knocked lower by Jefferies downgrade

Jefferies downgraded its stance on consumer goods group Reckitt Benckiser to 'underperform' from 'hold' on Thursday, slashing the price target to 5,000p from 6,800p as it argued that the surprise retirement of chief executive Rakesh Kapoor last week "crystallises long-brewing anxieties".

"We see no quick fixes and a material risk of a margin re-set under a new CEO," it said. "With a materially below consensus view on FY19, and a weak cold and flu season in the US a potential negative catalyst near term, we move to underperform."

Jefferies pointed out that Kapoor's departure came on hot on the heels of the announcement in December that GlaxoSmithKline and Pfizer are to pool their over-the-counter healthcare assets into a joint venture.

"We can’t help but think that the two events are connected. Was it the loss of what we think was Kapoor’s dream acquisition that is tipping him into retirement?" it said.

Reckitt walked away from the auction for Pfizer's OTC in March, when it announced that discussions to buy some elements of Pfizer's assets had ended.

"Our concern isn’t so much the fact that the new GSK/Pfizer behemoth is going to eat RB’s market share lunch. Neither GSK nor Pfizer strike us as particularly aggressive competitors and the new entity has an ambitious margin target. If anything it might be possible for RB to take a bit of share near term, as the integration process takes GSK/Pfizer’s eyes off the market.

"The more material problem for us is the one of what the implications are for RB’s future innovation pipeline and growth platforms."

Jefferies also highlighted the company’s "maxed out" margins, and downside risk to 2019 consensus. It said the weak cold and flu season in the US and Mucinex share loss were the immediate risks to numbers.

Finally, it said the planned spin-off of Reckitt's hygiene and home care business would be a "great get out of jail free card", but full separation won't be achieved until 2020.

At 1520 GMT, the shares were down 3.4% to 5,589p.