The Investment Column: Reckitt's sparkling run to continue
Monopoly makes BAA a good long-term bet - Hardys & Hansons can brew up a treat for investors
Thursday 10 February 2005
Reckitt Benckiser's results are as sparkling as a glass cleaned with its Finish PowerBall dishwashing tablets. The reputation of Bart Becht, the chief executive, is as fragrant as a room freshened with its Airwick click spray. And the investors who have repeatedly called the top of its extraordinary share price rise are left reaching for the Disprin.
The company was created just over five years ago by the merger of Reckitt Coleman with Benckiser of the Netherlands, and last year it made as much money in the final three months as it did in the whole of 1999.
Sales in 2004 were up 10 per cent and profits rose 17 per cent. It puts the FTSE 100's other Anglo-Dutch consumer goods group, Unilever, firmly in the shade.
Mr Becht has a tight control on costs, always searching for efficiencies across the organisation, but it is the top-line growth that sets Reckitt apart. It has pushed its main brands upmarket and into more homes by coming up with innovative and enticing new products - and advertising them heavily. Lemsip is a good example, having been transformed from a boring powder for snivellers to a max-strength flu tablet for wannabe executives.
So - one more time - surely this is as good as it gets? The shares were down on yesterday's results in part because of the temptation to take profits, but also because of Mr Becht's cautious comments on profit margins, which were a little shy of some forecasts. Raw materials costs are rising almost across the board.
Asked about the mega-merger of Procter & Gamble and Gillette, Mr Becht steered a difficult course yesterday, refusing to agree that the industry must consolidate but also pointing out that Reckitt's strong cash flows (even after more share buy-backs and the long-overdue increase in the dividend) allowed it to make acquisitions of its own worth up to £2bn.
Investors who hop aboard now are paying a full price, for sure, but this is a vibrant company with bid potential. Hold.
Monopoly makes BAA a good long-term bet
BAA owns seven UK airports including the giant Heathrow, where it is three years away from unveiling a fifth terminal to accommodate the inexorable rise in air travel. That project is on time and on budget, while more immediate financial trends within the group also continue on the correct flight path.
Yesterday it revealed its latest passenger numbers, saying it had seen 9.95 million through its gates in January. Investors were most pleased with the numbers at Heathrow, up 6.1 per cent on the same month last year, and Gatwick, up 10.8 per cent. The cheap dollar and the buoyant corporate climate is attracting shoppers and businessmen alike to travel transatlantic, while airlines have been advertising heavily. Meanwhile, the budget airlines are still piling on flights to Continental Europe and Ireland.
In total, BAA's passenger numbers for January were up 7.4 per cent; for the financial year since April, up 6.6 per cent. Recent nine-month results also showed passengers are spending more at BAA's airports.
As a play on increased air travel in the short term, BAA has less to recommend it than, say, British Airways, where extra ticket sales can be added almost wholly to profit. BAA gets only a cut of ticket prices and whatever the passengers spend in the shops. As a longer-term play it will be less volatile and, because of its monopoly, does not face the fierce competition that means airlines often fail to make money. Continue to hold.
Hardys & Hansons can brew up a treat for investors
Hardys & Hansons was created from the merger of two family-owned brewers in 1930, and the clans still control it through extra voting shares. As a result, it has a low stock market profile, although the retirement of Richard Hanson as chairman last year nudged corporate governance in the right direction.
Not that the company's performance has been at all dissatisfactory. It is an old-school mix of brewing, pub and restaurant assets, including more than 250 pubs concentrated in Nottinghamshire, Derbyshire and Yorkshire. Of its venues, it manages about a third directly, with the rest rented to tenants. Its cask ale has declined in popularity but the company has moved with the times and puts on a very strong food offering at its community-focused venues.
The annual meeting yesterday was told that turnover in the managed pubs is up 4.5 per cent in the period since 2 October, but that the company is having to absorb higher minimum-wage costs and utility bills. That's nothing new. Nor was the warning that growth from new properties will be a little lower this year because of the difficulty in finding good value sites. Shareholders can take comfort that it will not overpay for acquisitions, that its properties are very conservatively valued on the balance sheet, and that there is scope to increase payouts to shareholders beyond the current 3.4 per cent dividend. At 580p, buy.
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