Investment: Reckitt ready for a place at the top table

SINCE Vernon Sankey began re-inventing Reckitt & Colman a few years ago, the shares have proved a solid performer. The City has liked the stated target of increasing earnings by 10 per cent a year under a plan to seek a global spread of businesses concentrating on products that are either number one or two in their markets, such as Lemsip, Harpic and Dettol.

But there was a sense of disappointment yesterday as the household products group reported a 7.8 per cent fall in first-half profits to pounds 152.4m forcing, the shares down 66p to 996p.

There were several grounds for disappointment. One was the pounds 60m provision to make the group's computer systems year 2000 compliant. Another was the lack of news on possible alliances with other household product groups, which has been the subject of recent speculation. Then there was the profits themselves which, although in line with expectations, included pounds 8m of lower-quality earnings from disposals.

These issues mask what is still a good performance overall. Underlying sales grew by 4.7 per cent, a creditable performance. Margins improved from 17.3 per cent to 17.6 per cent.

The spread of Reckitt's businesses may be a concern as emerging markets - accounting for 30 per cent of group profits - threaten to suffer a domino effect. Profits more than halved in Asia, although this is Reckitt's smallest region by profits. Latin America, accounting for nearly 15 per cent of profits, might be more of a worry.

Looking forward, Reckitt & Colman should continue to derive the benefits of globalisation as it rolls out top products and innovations through its distribution system.Given the trend towards consolidation in markets that are going global, there has to be the chance of mergers and alliances as the middle tier of household products companies battle to join Unilever and Procter & Gamble at the top table.

On full-year forecasts of pounds 330m the shares trade on a forward multiple of 18. A solid hold.

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