Tuesday newspaper share tips: Reckitt Benckiser

Full-year sales improved on a like-for-like basis, led by a 14% jump at its health products group, which makes up one-third of the firm’s sales. Profit margins improved too and all geographical regions flourished. That helped push the stock’s price to 24 times forward earnings; that is head and shoulders above its peers, the Financial Times’s Lex column said.

However, the company’s financials were flattered by a lower than expected effective tax rate and gross margins are still short of their 2010 peak of 60%. Hence, if expectations remain so high in the year ahead that valuation might become a problem. Kapoor will need to prove that those better margins weren’t just the result of some “fortuitously low-hanging fruit”, Lex said.

Consumer goods-maker Reckitt might be expensive, but it’s also defensive, churning out improved revenues and margins year after year no matter what was going on in the markets it serves. Its heavy investments in healthcare should pay-out as that is the first thing that people in emerging markets shell out on when they get their hands on any money, The Times’s Tempus said.

The firm has also managed to avoid the common mistake of ‘imperial overreach’, focusing on 19 ‘powerbrands’ that can be enhanced with new products and avoiding a sprawl of second-tier products. The benefits from its ‘Supercharge’ cost-savings programme have also begun to accrue sooner than expected, allowing the manufacturer of market leaders such as Durex, Dettol and Lemsip to forecast revenue growth of 4% to 5% next year.

Despite being undeniably expensive at 25 times earnings, “there is not a lot not to like about Reckitt” Tempus said, especially with the prospect of further successful M&A should Pfizer’s consumer business become available.

"Buy for the long-term."