Today I am looking at why I believe Reckitt Benckiser Group (LSE: RB) (NASDAQOTH: RBGLY.US) is a terrific stock selection.
Revenues rising in the West
Needless to say, the impact of enduring macroeconomic issues in Europe and patchy financial recovery in the US has weighed heavily on consumer spending power in these traditional retail strongholds. But while retailers and manufacturers alike have failed to shake free from the heavy sales pressure of recent years, generally speaking, Reckitt Benckiser has suffered no such problems.
Indeed, the firm announced this month that group revenues from Europe and North America — regions which account for 57% of core net turnover — advanced 7% during 2013, to £5.07bn, and 3% on a like-for-like basis.
With the company reporting signs of “growth returning to most parts of Europe,” and electing to combine its European and North American operations to improve the speed and scale of new product innovations, the future looks good for these key territories.
Brilliant brands underpin solid growth
Reckitt Benckiser can thank the strength of its bursting portfolio of market-leading labels in keeping group sales ticking relentlessly skywards. From Vanish stain remover through to its Gaviscon indigestion remedy, the company has enviable finesse in developing its reputation across a multitude of product sectors, and ploughed a cool £100m into building these Powerbrands last year alone.
The company boasts a reliable conveyor belt of product and sales innovations to boost revenues, and solidified its pole position in the Chinese contraception market, for example — Durex is the country’s most popular condom brand — last year by rolling out a raft of new variations that it promoted heavily through social and digital media.
Despite having to endure wider market difficulties, particularly in developing territories, Reckitt Benckiser remains confident that its “pipeline of innovations, Powerbrand roll-outs and brand investments will deliver another year of high quality growth” in 2014.
Emerging market fears overplayed
But while the company noted that “emerging markets continue to slow,” Reckitt Benckiser continues to punch growth rates which its rivals can only dream of. In Latin America and Asia Pacific — source of 28% of core net revenue — sales rose 8% during 2013, to £2.51bn, with like-for-like growth of 10%.
Undoubtedly the firm is having to work hard to battle headwinds in some of these regions, with an intensifying slowdown in Russia, Middle East and Africa prompting revenues here to advance just 1% last year, or 5% on an underlying basis, to £1.36bn.
But with momentum in the emerging market engine rooms of India and China rattling along at a steady pace, and measures in place to turnaround sales lag in other areas — from management shake-ups to hefty brand investment — I expect Reckitt Benckiser to extend its success in these regions.
