Investment: Reckitt at a turning point
Thursday 04 February 1999
The household products group, whose brands include Harpic and Dettol, parted company with its chief executive, Vernon Sankey, on Tuesday just three months after a disastrous profits warning. The shares shot up 50p on the news and rose another 16p to 886p yesterday as the market senses that this company could be at another turning point.
It is four years since Reckitt paid pounds 1bn for US group L&F, the makers of Lysol disinfectant, and sold off other assets such as Colmans mustard. City experts now see one of two things happening: there could be a hardening of the existing strategy, but with a sharper and more responsive view on costs and market changes, or a predator could launch a bid.
Few expect a radical change of strategy, and the company indicated as much on Tuesday. It will remain focused on a core of key brands that are number one or two in their sectors, whilst expanding operations in emerging markets, particularly in Asia and Latin America. It is a similar strategy to Unilever's, but the problem at Reckitt & Colman has been some bad luck and some mistakes in implementation.
It failed to address the cost base in Asia quickly enough following the economic crisis there, and it was slow to adapt to the shift among US retailers towards just-in-time relationships with suppliers: this meant it was hit harder than rivals by the subsequent destocking. Both were key reasons behind's Reckitt's profits warning in November. Of course, trading has been tough
Where now? Talk of a bid is inevitable as the company is vulnerable without a chief executive, and the shares are still well off their peak, even after the rise of the past two days. Possible predators include Unilever, Procter & Gamble and Colgate Palmolive. Sceptics say Receipt is too small to tough it out with muscular rivals such as these.
But this ignores two points. One is that, although size is not a prerequisite for success in these markets, Reckitt has top brands such as Dettol, Harpic, Mr Sheen and Wizard in household products. In over-the-counter medicines it has Disprin and Lemsip. These are all top brands in their respective niches.
This might make the group an attractive morsel for a larger player, but this may not be the time. Analysts suggest bidders would want to see more news on current trading when the company reports its full-year results in March before making up their minds on a pounds 4bn bid.
Some say there could be more bad news on trading, prompting a further round of downgrades, and that Reckitt's markets are so tough that sales growth will be difficult to achieve. "They don't need to dive in now, they can afford to bid their time," one analyst said.
According to some sector watchers, Reckitt & Colman's share price is now in no-man's-land. On fundamentals it is probably overvalued, but it is trading at a discount to break-up valuations of pounds 10-plus per share.
That could lead smaller investors to take one of two courses. Cautious souls could take advantage of the current spike in the price and sell. Bolder types might look at the multiple of 17 on expected profits of pounds 277m and find the stock interesting. But even they should wait for further news on trading before diving in.
- 1 Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
- 2 The confessions of men who ordered mail-order brides
- 3 UK weather: Britain braced for snow as arctic air mass moves in
- 5 'Isis' schoolgirls: Missing British teenager tweets picture of her Syrian takeaway
Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
Aaron and Melissa Klein: Oregon anti-gay bakers ordered to pay $135,000 after refusing to make cake for same-sex wedding
UK weather: Britain braced for snow as arctic air mass moves in
Power of Nepal earthquake was equivalent to 20 huge atomic bombs
Nepal earthquake video: Terrifying footage shows moment avalanche hit Everest Base Camp
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...
£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...
£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...
£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...