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/ MDLZ MRK MAERSKB FDX BEZ
Reckitt Benckiser’s (RB/ LN, BUY, T/P 9000p) interim results showed a like-forlike revenue declined -2% in Q2 as flagged in Reckitt’s 6th July announcement. Half year revenue of £5.0bn (+14% from last year) with £2.5bn coming in Q2. Like-for-like sales growth in the half year was down 1% in line with consensus estimates. An H2 sales growth recovery remains on track.
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Games Workshop’s (GAW) FY20 results show that demand post lockdown, during which the company initially suspended all trading, has surprised on the upside, leading to a greater profit outturn than recently anticipated by management. Management is aiming to grow revenue in FY21e, while maintaining the operating margin given a focus on leveraging Online (19% of group revenue) as the economic environment will likely lead to lower growth for Trade (52% of group) and a decline in Retail (29% of group) revenue. Our new forecasts for FY21e are for revenue to increase by 2.1% and PBT to decline by 5% due to lower royalty income.
Companies: Games Workshop Group Plc
For this Monthly, we are delighted that Rooney Nimmo and 24Haymarket have allowed us to reproduce a recent report they jointly published, entitled An analysis of UK exits (2015-2019), which provides a granular analysis by sector of the activity in our dynamic private companies world. We hope you find the insights of interest.
Companies: AVO AGY ARBB ARIX CLIG ICGT NSF PCA PIN PXC PHP RECI SCE TRX SHED VTA
H1 combustible resilience and surprising improvement in the New Categories unit (vapour, THP, modern oral). We continue to be positive on the stock.
Companies: British American Tobacco plc
discoverIE’s trading update for the first four months of FY21 confirms that orders are moving in the right direction, with month-on-month increases in June and July. Revenues are down 8% y-o-y on a reported basis, in line with expectations. While COVID-19 is likely to present ongoing challenges in the short term, the company is confident it has the resources to manage the business through this and is well positioned to take advantage of growth opportunities post COVID-19, highlighting its intention to resume acquisitions in H2 as market conditions improve. We maintain our forecasts.
Companies: discoverIE Group Plc
Walker Greenbank is a higher end interior furnishings business with well-established global brand names and manufacturing facilities in the UK. The Group has this morning released an update to coincide with its AGM, which confirms that the improving trends reported at the full year results last month have continued to be seen.
Phoenix today announces the results of 7 of its 30 holes into the Empire Open Pit resource gold zone from its property in Idaho. Results are encouraging with several, close-to-surface intersections e.g. 13.7m grading 2.1g/t gold from 5m and another hole with 1.6m grading 8.5g/t gold from 32m down. The gold is associated with minor silver (on average just over 3x the gold grade). Additional channel and field samples were also taken from surface to help site drilling and to define better the surface expression of the skarn-host contact and the higher-grade zones – with grade demonstrated in most of these.
Companies: Walker Greenbank Plc Phoenix Copper Ltd. (United Kingdom)
James Halstead is a manufacturer and international distributor of commercial floor coverings. This morning, the group has provided a full year trading update for the twelve months to 30 June 2020, which illustrates stronger demand than anticipated at the time of the interims in March. A second interim dividend has been declared, whilst the year-end cash figure is reported to be ahead of the interim position. Furthermore, since the year-end, UK sales are reported to be less than 10% down against the comparative period, whilst key overseas businesses are near flat.
Dillistone has reported FY results to December 2019 with revenue of £8.0m (FY 2018: £8.7m), an adjusted loss before tax of £0.3m (FY 2018: £0.0m) and, against a favourable tax outcome (R&D tax credits), EPS of -0.15p (FY 2018: +0.61p). The company ended the year with cash of £0.4m (FY2018: £0.7m), and net debt position of £0.8m (FY 2018: net debt £0.4m).
Companies: Dillistone Group Plc James Halstead Plc
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
Disappointing H1 driven by NGP. Reducing investments in this category was the company’s choice, but we believe it is a bad mid-term strategy. The dividend cut has finally shown increasing weaknesses vs. peers during the crisis.
Companies: Imperial Brands Plc
Independent review launched: The Boohoo Group has announced the launch of an immediate independent review of its UK supply chain, intended to identify any areas of risk and non-compliance and to further strengthen the Group’s compliance procedures to ensure similar allegations will not recur in the future. The review is to be led by Alison Levitt QC, a highly experienced advocate who has previously reported on complex issues, including safeguarding enquiries. Boohoo has also announced an initial additional £10m investment in ensuring any supply chain malpractice is eradicated and is accelerating its independent third-party supply chain review with ethical audit and compliance specialists Verismo and Bureau Veritas.
Companies: boohoo group Plc
IG Design Group has delivered another year of strong revenue growth (+10%), together with the transformational acquisition of the US company CSS. Adjusted profit before tax and diluted EPS were slightly down year-onyear but would have been ahead and in line with market expectations, adding back the adverse impact of Covid-19. A final dividend of 5.75p sees the full year figure up 3%. While the group has made a commendably strong start against its Covid-19 adjusted forecasts, the full year outturn for FY21E (and our view of a bounce back in FY22E) will nonetheless be adversely impacted by the ongoing changes brought about by Covid-19.
Companies: IG Design Group Plc
Victoria has reported results to March 2020, including a positive update on trading for the first quarter. Whilst Q1 FY2021E revenues were 64% of the Group’s pre-COVID budget, there has been a strong recovery across the period from 35% in April to 102% in June. Like-for-like organic revenue growth for FY2020 was 0.4% despite significant COVID impacts from late-February and the gross margin improved to 36.4% (2019 35.6%). £385m net debt at 30 June (excluding IFRS16) also compares favourably to the year-end position at £380m (3x adjusted net debt/EBITDA). With current revenues running ahead of budget for FY2021E the statement will provide reassurance over the resilience of the business, albeit that some revenue growth may be the result of pent up demand. Guidance remains withdrawn but consensus estimates for FY2022E, based on c.£635m of sales were already anticipating an adjusted EPS result for that year of 32.5p, equivalent to a PER of 7.4x. We have no formal forecasts at the present time and will initiate coverage in due course.
Companies: Victoria Plc
Due to a change in Analyst role, Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
Companies: BDEV BWY BKG VTY COST CRST BBY FERG GLE KLR KIE MSLH MER MTO NXR PSN RDW RNWH SFR SHI MGNS TW/ CTO TEF TPK GFRD
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GTR SOHO PHP EBOX ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA INTU NRR
Covid-19 could be the catalyst for build-to-rent (BTR) to “come of age” according to residential for rent developer and manager Watkin Jones. It was already ramping up BTR alongside its core of student accommodation, but we now believe demand for purpose-built private rental could be further boosted by people choosing to rent and by an institutional hunger to replenish dwindling sources of yield. The recent interims showed BTR overtaking student housing’s pipeline and we believe WJ’s low-risk, capital light model is tailormade to serve this burgeoning market.
Companies: Watkin Jones Plc
Today’s statement reveals incredibly robust Q1 trading across the Group’s brands and regions, with a positive outlook and guidance reinstated for the remainder of the financial year and beyond. In addition, the Group has announced the acquisitions of Oasis & Warehouse, bringing two well-recognised and complementary brands onto its platform. We believe the unprecedented disruption resulting from the COVID-19 pandemic has accelerated the channel shift to online where we see BOO as the clear winner, with an established and leading model positioned to consolidate the market.