Reckitt Benckiser Share Analysis – Who cares about brands anymore?
Renckitt Benckiser share analysis is part of a series of analyses I made on growth stocks that compound over time. The best stock out of the list to invest in was Visa. You can check my Visa stock article and also the tool best used to analyze the risk and reward when it comes to growth stocks, the delta of the delta.
Reckitt Benckiser share analysis – business overview
Reckitt Benckiser Group plc is a British multinational consumer goods company headquartered in Slough, England. It is a producer of health, hygiene and home products. The company was formed in 1999 by the merger of British company Reckitt & Colman plc and Dutch company Benckiser NV. It owns many famous brands.
Reckitt Benckiser’s brands
Source: RB
I have already looked at the company when I analyzed the FTSE 30 index where my conclusion was that millenials don’t care that much about brands and that the company’s best days might be beyond it. This is a general statement, but the depth of it is that there is an unevitable margin contraction ahead as people can easily buy unbranded or private labels for lower prices. Usually the products are just next to each other on the shelves.
Reckitt Benckiser business strategy
There is a new CEO, Laxman Narasimhan, that has to put the company on a new course and restructure it to make it more efficient. This is definitely going to come at a cost with uncertain outcomes and I am back to my initial thought; why the hell do I have to buy Finish or Calgon when there is something else that is cheaper, probably produced in the same factory and I don’t have to pay for Reckitt’s expensive marketing made to sell me cleaning products or throat pills.
Reckitt Benckiser share financials
If we take a look at financials, all looks good on the surface. There has been growth over the past decade, margins are stable and strong but if we look at capital expenditures, those have been expanding significantly and the free cash flow doesn’t even show a benefit from a very weak British pound.
Reckitt’s financials
Source: Reckitt Benckiser Morningstar
However, the return on capital invested has been suffering lately as you can push on a string only for so long. Plus, debt levels have been increasing.
Reckitt’s return on invested capital
Source: Reckitt Benckiser Morningstar
Reckitt Benckiser stock valuation
When we put this into a valuation perspective, the dividend yield is just 2.46%, PE ratio around 20 on likely slow growth in the future with high capital requirements to keep the situation as it.
Now, you might ask why does a value fund own such a stock if it looks like it is expensive?
Reckitt Benckiser share price
Well, when you look at a portfolio, you never know when they bought the position, So, this might just be a holding they bought in the distant past and, over the past 20 years, the stock is a 10 bagger – not counting dividends.
Reckitt Benckiser share forecast
As for Reckitt Benkciser’s share, I think it is highly unlikely that it repeats the performance from the past two decades. There is less room for global expansion as it was the case and the competition is fierce.
Reckitt Benckiser Investment Outlook
However, the PE ratio is around 20, the business is a good one, so it is likely to deliver a return of around 5% long-term, including the dividend. Not bad, but we strive for better. It is also not in the top 10 positions of the fund.
This short analysis is part of my constant search for great businesses at fair prices. If you wish to check my core portfolio positions, please check my Stock Market Research Platform. If you wish to simply learn more about investing please check my FREE Comprehensive Stock Market Investing Course.