What’s Telling Me to Buy Reckitt Benckiser plc Today

Royston Wild considers the investment case for Reckitt Benckiser plc (LON: RB).

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Today I am looking at Reckitt Benckiser (LSE: RB) (NASDAQOTH: RBGLY.US) and deciding whether to pick the household goods giant up off the shelf.

Positive half-yearly report confirms operational uptrend

Reckitt Benckiser announced last month that adjusted operating profits edged 3% higher in the first half of the year, to £1.16bn. This was driven by a meaty 7% increase in net revenues, to £4.99bn. Encouragingly, like-for-like sales rose 5% from the corresponding 2012 period.

The firm also reported a hefty 230 basis point improvement in gross margins, to 58.7%. Reckitt Benckiser boasts excellent strength through its self-proclaimed ‘Powerbrands’ such as Dettol, Vanish and Cillit Bang, which allowed it to hike prices during the period. A better product mix, combined with an ambitious cost-cutting plan, also helped to drive margins.

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On top of this, the company also reported that “emerging markets continued to perform strongly despite some slowing in the growth of their economies” during January to June. And Reckitt Benckiser has specifically targeted 16 ‘Powermarkets’ to underpin future growth, and is spending large on brand improvements to improve demand in these regions. China now represents the largest single market for its Durex contraceptive brand, for example.

A solid, if unspectacular, investment case

City analysts expect earnings per share to edge marginally higher in 2013, to 267.9p from 267.6p last year, before accelerating modestly in 2014 to 277p.

The shares currently change hands on a P/E rating of 16.9 and16.4 for 2013 and 2014 respectively, above a prospective reading of 15.8 for the household goods and home construction sector, as well as a readout of 16.1 for the FTSE 100.

As well, Reckitt Benckiser carries a dividend yield of 3% for the current year, modestly below a reading of 3.2% for the UK’s largest companies although larger than the 2.7% for its industry rivals.

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On the face of it, Reckitt Benckiser does not offer particularly juicy pickings for the near-to-medium term. But if you are seeking a dependable, defensive earnings generator with the potential to experience igniting developing-market revenues over the long haul, then there are worse picks out there than the household goods specialist.

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> Royston does not own shares in Reckitt Benckiser.

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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