Here’s why the Reckitt Benckiser share price is flying today

Reckitt Benckiser Group plc (LON:RB) is up following a strong set of results. Roland Head gives his verdict on the stock.

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Shares in consumer goods and healthcare group Reckitt Benckiser Group (LSE: RB) got off to a flying start on Monday morning, after it reported a stronger performance than expected for 2018.

A strong performance

Reckitt’s sales from continuing operations rose by 15% to £12,597m last year, excluding the impact of exchange rates. This strong performance included a 3% increase in like-for-like sales and a strong contribution from the Mead Johnson infant formula business, which it acquired in mid-2017.

Profits were boosted by $158m of cost savings and the group’s adjusted net profit rose by 11% to $2,410m. Adjusted earnings were up 7%, at 339.9p per share. Reckitt’s adjusted operating profit margin fell by 0.6% to 26.7%, a figure the company expects to maintain in 2019.

Is this the right time to buy?

The consumer goods market does seem to be getting tougher, as younger consumers focus more closely on ethical factors and the ‘story’ behind the brands they buy. But in my view, RB brands such as Dettol, Durex and Nurofen, are likely to remain popular for many years to come.

Chief executive Rakesh Kapoor plans to retire by the end of 2019. But Mr Kapoor has put in place plans to develop the group into two self-contained business units, RB Health and RB Hygiene Home.

I suspect that at some point in the next few years, one of these divisions will be spun out or sold to form a new company. This could result in an attractive return for shareholders. In the meantime, I’d be happy to rely on the group’s large portfolio of brands to provide reliable profits and modest growth.

The stock now trades on 18 times 2019 forecast earnings, with a dividend yield of 2.9%. That’s not cheap, but this is a highly profitable and defensive business, with a strong track record of shareholder returns. I continue to see this as a buy-and-hold stock.

Building a hands-free portfolio

If you’re interested in investing but have limited time, then it makes sense to focus on stocks you can aim to hold forever.

One stock I think fits this description is FTSE 100 quality assurance provider Intertek Group (LSE: ITRK). This group provides services such as testing and certification to industries all over the world.

Intertek’s latest trading statement showed that its sales rose by 4.8% to £2,315.7m during the first 10 months of 2018. Profit margins were said to show “progression”, which I read as modest improvement.

This business has expanded over the years by making many small acquisitions and integrating them into its operating model. It’s a strategy that seems to have worked well. Intertek now has 1,000 facilities in more than 100 countries. The business generated a return on capital employed of 29% in 2017, suggesting that money invested by management consistently delivers strong returns.

The shares trade on about 24x 2019 forecast earnings, with a dividend yield of just 2%. Like Reckitt Benckiser, Intertek is an expensive stock. But in my opinion, demand for the group’s services is only ever likely to increase. With high profit margins, strong cash generation and a track record of steady growth, I believe this is a stock you could buy and hold forever.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Intertek. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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