Reckitt reported stronger than expected Q3 20 revenue growth of 13.3%, on an lfl basis, to £3.5bn, driven by strong growth in Health (+12.6%) and Hygiene (+19.5%). Factoring in FX headwinds of 6.4pp, reported growth came in at 6.9%.
Management upgraded FY20 top-line growth expectations to low double-digit (vs high single-digit earlier) while keeping EBITDA guidance unchanged (350bp margin contraction vs FY 19). Following the strong Q3 performance, we will raise our estimates as well as the target price.
Companies: RBN RB/ RB 3RB RBGPF
Reckitt reported strong H1 20 results, beating consensus as well as our estimates. Sales were up 11.9%, driven by Hygiene (+16.1%) and other health (+22.7%). The top-line growth was mainly attributable to volumes (+11%), which largely contributed to a 90bp expansion in operating margin (24.5%). Following the strong H1, management now expects high single-digit growth in FY20 (vs higher than 0.8% previously) with margin expectations unchanged (-350bp vs FY19). We will be raising our estimates.
Companies: Reckitt Benckiser Group plc
Reckitt Benckiser reported stronger than expected Q1 20 revenue growth of 13.3%, on a lfl basis, to £3.54bn, driven by broad-based growth across segments (except IFCN/baby food). Factoring in FX headwinds of 1pp, reported growth came in at 12.3%.
While management expects FY20 to be better than initial expectations (growth above 0.8% and 350bp margin contraction), it hasn’t quantified them due to the uncertainties caused by COVID-19. Given the strong start to FY20, we will raise our estimates.
Reckitt reported largely in line revenue and a marginal bottom-line beat. The segmental performance was similar to that seen in the last couple of quarters: disappointing Health and robust HygieneHome. The company also announced a surprise £5bn write-down in the IFCN business.
For FY 20, management expects growth above FY 18 (+0.8%) and a margin contraction of 350bp, thanks to the investment to drive volume growth.
We will revise our estimates downwards to factor in the soft FY 20 guidance.
Reckitt Benckiser’s Q3 19 revenue came in at £3.29bn, up 1.6% lfl, largely in line with street estimates but marginally above our estimates. The growth in IFCN (+7%) and HygieneHome (+4.5%) was offset by weakness in OTC (-6.8%) and ‘Other Health’ (-2.5%). The management cut its FY 19 guidance to 0-2% growth (vs 2-3% earlier) and an operating margin decline (vs flat earlier) compared to FY 18. Given the slower than expected recovery in Health, we will trim our estimates marginally.
Reckitt Benckiser reported a mixed set of H1 19 numbers – the top line missed while profits beat estimates. Revenue came in at £6.24bn, up 1% lfl – led by HygieneHome (+3%) which offset weak health (-1%). Adjusted operating profit came in at £1.48bn, with the associated margin at 23.6%. Q2 top-line numbers also missed expectations.
Looking ahead, management cut its top-line guidance (+2-3% vs +3-4% earlier) while re-iterating margin guidance. Factoring in the weak performance, we will be reducing our estimates.
Reckitt Benckiser’s Q1 19 revenue missed the street’s estimates but was in line with our expectations. Revenue was up by 1% on a lfl basis – driven by strong growth in IFCN/baby food and HygieneHome, which was partly offset by weakness in OTC. Management reiterated its FY 19 guidance (3-4% lfl growth and operating margin – of 26.7% – similar to FY 18). Given the in line numbers, we do not expect any major change in our estimates or recommendation.
RB reported strong Q4/FY 18 numbers, trumping ours as well as street estimates. Q4 revenue grew by 4% lfl to £3.34bn. IFCN (baby food) was the standout, rebounding strongly from production disruptions in Q3. FY 18 revenue was up by 3% lfl to £12.6bn while operating income grew by 12% to £3.36bn. Full year dividend was raised by 4% to 170.7p per share. Management expects FY 19 growth of +3-4% and adjusted operating margin to remain similar to FY 18.
Manufacturing disruption in the infant nutrition business (IFCN/Mead Johnson;-6%) business lacerated 2pp (£70m) from Reckitt Benckiser’s Q3 numbers, which fell short of market expectations. Lfl sales growth came in at 2%, which was further clobbered by a negative FX impact of 4%. In effect, reported sales declined by 2% to £3.12bn. All top-line growth numbers in lfl, unless specified otherwise. The rest of the health business proved resilient at +4%, fully offsetting the weakness in the IFCN business – the overall health business came in flat, reaching £1.89bn. Hygiene also held steady at 4% growth to £1.23bn during the quarter.
Guidance for the year – lfl revenue growth at the upper end of 2%-3% – has been maintained (9M lfl growth came in at 2%).
Q2 ended on a good note for RB. The biggest relief was the Mead Johnson business demonstrating a turnaround. Also, management is actively investing in the right places, including on re-scripting (partly) the Scholl failures. The infant formula nutrition business is registering a solid growth and we expect it to be a potential catalyst not only for China but the US as well. At the same time, however, we believe that management needs to show that it is able to maintain this momentum.
Reckitt’s first quarter results did not offer anything to be excited about in the near term. The results reflected a worrying state of the Scholl portfolio, underperformance of Dettol in the Middle East, weak pricing in the household business (even though volume has been able to more than compensate for now) and a broader market slowdown. While hope was seen in some pockets, such as Mead, the following quarters are likely to remain subdued.
Reckitt Benckiser (RB)’s disappointing run continued unabated into Q3 17 (trading update), with the company reporting its second successive sales contraction (-1% lfl in the RB base business, Q2 17: -2%, Q3 16: +2%), albeit a tad healthier than the previous quarter’s near carnage (at -2% lfl, the worst quarter ever for the staples behemoth). The key culprit was the July 2017 cyberattack (Petya, lopping off a good c.2ppt from the top-line), with the situation getting exacerbated by the lingering impact of on-going internal issues (Scholl / Amope impact) as well as adverse market developments (GST in India, the weakness in Latin America markets). At the segment level, Health continued to suffer (-2% lfl), although management maintained that underlying growth was in line with the somewhat muted market return (3% vs. long-term category growth expectation of 4-6%). Durex, Gaviscon and Mucinex were the key growth drivers for the segment. After a poor Q2, Hygiene recovered sequentially (+1% lfl vs. -1% in Q2 17) driven by the strong performance of Finish cleaners. However, this was offset by the protracted weakness in Dettol, in its largest market, India (a combination of fiscal reforms as well as the cyberattacks). While Home remained soft (-4% lfl, -2% in Q2 17) on increased competition and pricing pressure for Vanish, Portfolio Brands saw an uptick (+8% vs. -8% in Q2 17) due to one-off phasing benefits from institutional customers.
Reported revenue grew c.30% to £3.2bn, benefiting from the incorporation of Mead Johnson ‘MJN’ (acquisition completed on 15 June, £720m revenue contribution in the quarter) as well as a 2ppt forex benefit. After a shaky start, Mead Johnson positively surprised during the quarter, reporting a +1% lfl growth, ahead of the full year expectation of -2 to 0% growth. Factoring in the soft Q3 results, management again downgraded its full-year guidance (for the second successive time) and now expects the legacy RB (ex-MJN) sales to be ‘flat’ vs. a +2% growth expectation previously. Sales forecast for MJN remains unchanged.
From a geographical viewpoint, ENA contracted (-3% vs. 0% in Q3 16, lfl basis) due to continued weakness in Scholl across markets as well as the cyberattack, with North America (supply constraints in Mucinex distribution), the UK and ANZ being the worst hit. On the other hand, DvM expanded, albeit at a slower rate (+3% lfl vs. 7% in Q2 16) as China, Turkey, Indonesia and Pakistan performed strongly while India (GST implementation, flat growth), the Middle East (market weakness) and Brazil (increased competition) remained subdued.
The other key highlight of the update was the management’s announcement of the reorganisation of its operations into two separate business units, effective Q1 18 – RB Health (c.60% of sales) and RB Hygiene Home (c.40% of sales). RB Health will be headed by Rakesh Kapoor and will incorporate the current Health segment, MJN and the brands Dettol, Veet and Clearasil from the erstwhile Hygiene segment. RB Hygiene Home will be steered by Rob De Groot (current head of ENA operations) and will include the remaining Hygiene and Home brands (he will report to CEO Rakesh Kapoor).
As a reminder, RB completed the divestment of its food business in August (after putting it on the block in April) to McCormick (a US based spices and herbs company) for $4.2bn (c.£3.2bn), much ahead of previous market expectations of c.£2-2.4bn. The sales proceeds will be used to deleverage the balance sheet (debt being the primary mode of funding for the massive $16.6bn Mead Johnson deal). The company also announced the departure of four senior executives in September 2017 (Darrell Stein, SVP, information services; Roberto Funari, EVP, category development; Frederic Larmuseau, Head, developing markets; Deborah Yates, SVP, human resources), a likely fallout of the recent weakness. Moreover, Chairman Adrian Bellamy will be stepping down from the Board (effective at the 2018 AGM) and will be succeeded by Christopher Sinclair (board member since 2015, currently Chairman and former CEO of Mattel Inc.).
Additionally, RB incurred a £318m charge in Q2 17 related to its spun-off drug business – Indivior (demerged in 2014) following allegations of illegally impeding generic introductions (related to its Suboxone drug) back in 2013. With discussions still ongoing with the US Department of Justice (DoJ), management has hinted at the possibility of additional charges in the future. More recently, RB has been in the news for being one of the primary bidders for Pfizer’s consumer health business (strategic review commenced in October 2017).
Reckitt Benckiser’s (RB/ LN, BUY, T/P 9000p) Q3 trading statement reported -1% growth, which was 1% below expectations. The outlook statement is now for flat full year LFL net revenue, which implies around 3% LFL growth in Q4.
Reckitt Benckiser (RB/ LN, BUY, T/P 9000p) appears due to show quarter of slow organic sales growth when it releases its Q3 trading statement numbers on Wednesday this week. More importantly, a Sunday Times (15th October 2017) article reports Reckitt Benckiser as a front-runner to acquire Phizer’s (PFE US, N/R) consumer health business. In our view, consumer health M&A remains central to the BUY case for Reckitt Benckiser.
Welcome to Cyber Bytes – our new Flash Note where we will update on newsflow pertinent to the cyber insurance market. Recent news items have highlighted both the ongoing growth potential in cyber insurance but also the failure of many businesses to properly protect personal data from attack, highlighting the potential negative PBT impact eg Equifax, Fedex and Maersk. This is especially concerning for investors given GDPR comes fully into effect by end of May 2018, bringing with it potentially much more punitive fines.
Companies: RB/ 0R0G MRCK MRSK FDX BEZ
Research Tree provides access to ongoing research coverage, media content and regulatory news on Reckitt Benckiser Group plc.
We currently have 117 research reports from 9
Boohoo has announced meaningful progress in its Agenda for Change Programme, to deliver long lasting change to its supply chain and business practices. Sir Brian Leveson PC has been appointed to provide independent oversight of the programme, with KPMG engaged to provide additional resource, expertise and independence, working alongside the Group’s internal responsible sourcing and compliance team, as well as with external supply chain audit specialists Bureau Veritas and Verisio. We believe the calibre of the appointments reflects the Group’s unwavering commitment to implementing in full, and with complete transparency, all recommendations of the Independent Review.
Companies: boohoo group Plc
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
discoverIE has weathered the pandemic well, with H1 sales down -6% and adj. PBT down -12%. Cash flow was particularly strong, reducing net debt from £61m at March 2020 to £42m at September. The second half has started well, with orders ahead of sales and up on last year, and dividends have resumed with a 3.15p interim (up +6% on last year). We are factoring a touch more caution into our forecasts to allow time for orders to build into sales, but reiterate our view that discoverIE is resilient, flexible and well positioned for growth in the structurally growing markets of Renewable Energy, Transportation, Medical and Industrial & Connectivity.
Companies: discoverIE Group PLC
We initiate coverage of Argo Blockchain with a 17p target price and conservative forecasts. Argo operates a highly efficient cryptocurrency mining platform in Canada and the US, where it uses c16k specialised computers/machines to mine the cryptocurrencies Bitcoin (c90% of revenue) and Zcash. It differentiates because of its access to abundant, low cost power in these locations, and the proprietary technology that its team has created to optimise its machines’ operations. Argo has already achieved a cash payback of 1.3x on the machine investment it made in 2019, and we expect that Argo’s platform will deliver strong growth in the rapidly expanding cryptocurrency market, where the price of Bitcoin has increased to $19,000 from $9,000 in May 2020. Using conservative assumptions for mining rewards, and a spot Bitcoin price, we introduce forecasts for organic revenue growth of +34% to £25.3m, EBITDA growth to £11.1m from £5.6m, adjusted EPS of 0.7p, and EFCF of £7m. We also highlight in our 95p upside case that Argo’s platform is strongly geared to the interaction between Bitcoin’s price and the difficulty of mining Bitcoin, and in our downside case we highlight that under highly adverse assumptions Argo would still continue to generate EFCF, and deliver FY23 net cash of £11m or 4p per share. This attractive skew of share price outcomes demonstrates that Argo looks undervalued on 18x FY21 P/E, 9x FY21 EV/EBIT, and 17% FY21 EFCF yield, with peers on 26-40x P/E, EV/EBIT of 21-28x, and EFCF yields of 2-3%. We watch for changes in Bitcoin’s price and mining difficulty, Argo demonstrating operational efficiency at its results, and the potential acquisition of its Canadian datacentres.
Companies: Argo Blockchain Plc
CAP-XX Ltd* (CPX.L, 6.8p/£30.1m) | Tern plc* (TERN.L, 6.85p/£20.6m) | Location Sciences Group plc* (LSAI.L, 0.45p/£1.0m)
Companies: CPX TERN LSAI
Victoria has proved to be highly resilient in a challenging first half with revenues of £305.5m (H1 FY2020A £312.3m). The Group has seen 9.2% like for like revenue growth since the AprilMay lockdown and with the added benefit of operational actions and synergies the underlying EBITDA margin for the June-September period was ahead 300 bps LFL at 20.1% (H1 overall 17.2%). Net debt at 3rd October reduced by £5m from the year end to £364.4m, excluding IFRS 16 lease liabilities of £78.5m, with improved cash flow conversion. Understandably, the statement notes that it remains difficult to provide formal guidance for FY2021. Nevertheless the Board expects an outcome that will be well ahead of current market forecasts. We have no formal forecasts at the present time and will initiate coverage in due course.
Companies: Victoria PLC
Springfield has been granted planning approval for 75 private rental sector (PRS) homes at Bertha Park. This is a positive step, opening up a new revenue stream for the Group as part of its mixed-tenure offering at the Villages. It is Springfield’s first development to be approved for PRS housing. We expect more to follow, supporting Springfield’s significant medium term growth ambitions. The shares have recovered from recent lows but continue to trade at a substantial discount to peers on P/E and P/B metrics.
Companies: Springfield Properties PLC
Games Workshop’s (GAW) update highlights that trading remains ahead of the board’s expectations and that PBT in H121 will be not less than £80m, with growth of at least 37% on H120, and just 10% below the COVID-19-affected FY20. Demand continues to be driven, predominantly, by the recent new Warhammer 40,000 release and through the Trade and Online channels, while Retail is still recovering from the COVID-19 closures. Retail outlets are closed where required by governments but, unlike during the previous lockdown, the factory and warehouses are still operating following investment to make the locations compliant with social distancing requirements. We upgrade our FY21 PBT forecasts by 14%.
Companies: Games Workshop Group PLC
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
RA has announced interim results well ahead of H1/19, with H1/20 revenue up 53.5% and underlying operating profit up 118.8% versus the same period last year, despite the impact of COVID-19 causing delays to various (particularly Construction related) projects and highlighting RA's ability to consistently deliver under very challenging conditions. RA has now established firm contract award momentum with US$86m of cumulative new business awarded since FY19. Including the recently announced agreement (20 August 2020) with Danakali JV, Colluli Mining, where RA has been appointed preferred supplier, would add a further US$20m once finalised and bring the total to a value representing 153.4% of FY19A revenue. Despite the inevitable COVID-19 interruption during FY20, RA has demonstrated its ability to continue to expand its business substantially, further diversifying revenue by both geography and customer base. We expect to see further contract wins coming through during H2/20 and with all major delayed projects now recommenced and building towards normalised operational activity, the outlook into FY21 is strong.
Companies: RA International Group Plc
Today’s announcement confirms the strong trading momentum seen in Q1 has continued YTD. Group sales are +45% YOY with revenue growth across all geographies and brands, and profitability improving YOY.
IG Design Group delivered H1 adjusted operating profit and adjusted PBT increases of 13% and 16% to $32.4m and $30.2m respectively, ahead of prudent market expectations for the full FY21E financial year. This robust H1 performance, accompanied by an intensified focus on cash management - which saw average leverage reducing to 0.2x from 1.1x last year – has enabled the group to declare an unchanged interim dividend of 3.0p. We have subsequently raised our FY21E PBT and dividend forecasts, though our H2 forecasts continue to reflect a cautious view across the peak trading period given ongoing uncertainties arising from the Covid-19 backdrop.
Companies: IG Design Group plc
Last year, Venture Capital Trusts raised the second-highest amount since their launch in 1995, according to the Association of Investment Companies. This is good news for smaller companies seeking growth finance. Changes to pension regulations mean that VCTs are expected to continue to attract investors. Individual qualifying companies can receive up to £10m from VCT investors.
Companies: KEYS NBI MPM PTY BOO W7L
Red Dwarf, the very British sci-fi comedy franchise, ran for 11 seasons – most recently in 2017; and The Promised Land is a feature-length TV movie – out this year. Yes, the programme is an acquired taste. Strangely, too, many episodes are impacted by a virus or three (physiological, not main-frame).
Companies: WJG BKG CSP CRST MCS INL BDEV RDW GLE SPR TW/ PSN VTY GLV CRN ABBY BWY
Strong trading YTD; outlook cautiously optimistic
Companies: Team17 Group PLC