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 Snoop Dogg and Jared Leto buy a stake in Reddit as A-list invests $50m
- 2 Car tax disc changes: Two days to go - and they affect you much more than just not displaying a piece of paper
- 3 Ed Sheeran dedicates song to David Cameron
- 4 Now we know whose fault it is if you end up being murdered in Thailand
- 5 35,000 walrus gather ashore on north-west Alaska beach 'for a rest'
Snoop Dogg and Jared Leto buy a stake in Reddit as A-list invests $50m
Five-year-old Iris Grace is raising awareness of autism through her extraordinary paintings
Car tax disc changes: Five facts you never knew about your (almost obsolete) tax disc
The Aral Sea: Nasa pictures show how what was once the fourth largest lake in the world has become almost completely dry
Amal Alamuddin: Human rights lawyer's legal chambers forced to upgrade website following George Clooney wedding
Isis, we are told, is a 'clear and dangerous threat to our way of life'. I’m sorry, but I just don’t buy it
Exclusive: 'Putin's Russia has been my biggest regret,' says Nato's outgoing Secretary General
The Osborne Ultimatum: Chancellor’s benefits freeze bombshell will affect ten million households
There’s no excuse for Dave Lee Travis’s behaviour, but we need to keep a sense of proportion
Should gay sex be illegal? 16% of Britons think so
Mark Reckless becomes second Tory MP to defect to Ukip in a month
- < Previous
- Next >
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...
£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...
Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...