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: Reckitt Benckiser Group plc
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.
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
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The acquisition and planned relaunch of Debenhams online business is a transformational deal for the Group, establishing an ecommerce marketplace of immediate scale and high brand awareness. The deal expands boohoo’s target addressable market and opens the Group up to new product categories including beauty, sport and homeware. It is a significant step forwards in realising the Group’s ambition to operate the UK’s largest ecommerce marketplace, combining boohoo’s online capability and multi-brand platform with Debenhams leading brand recognition and extensive established network of third-party brand partnerships.
Companies: boohoo group Plc
Boohoo has delivered strong results over the peak trading period for the four months ended 31 December 2020. Group revenue is +40% YOY, with robust growth seen across all brands and regions. The Agenda for Change programme is progressing at pace, demonstrating the Group’s commitment to setting a new standard for ethical supply chains in the fashion industry.
SCE is raising £20m through a placing and open offer as the future commercial pipeline now justifies building the next manufacturing cell (“Cell 2”). Cell 2 will essentially double production capacity and transform the potential of the business. When operating at full capacity, we estimate that SCE would be capable of £35m revenues, £15m EBIT and £12.5m Earnings. This would equate to EV/EBIT of 7.1x and P/E of 9.5x based on the enlarged capital base. Recent trading updates have highlighted that trading is strong and in line with expectations, while longer term ASP expectations have increased significantly.
Companies: Surface Transforms plc
Today's news & views, plus announcements from BRBY, BHB, DPLM, IWG,GFTU, CMCX, JDW, GFRD, BGO
Companies: Bango plc (BGO:LON)Galliford Try Holdings PLC (GFRD:LON)
Although 2020 will probably go down in history as one of the most challenging years experienced during our lifetime, it will also likely be chronicled as one of the best years for the recognition and appreciation of science. As we entered 2020, the COVID-19 pandemic was in its infancy. However, it rapidly evolved through the exponential rise in infections and mortality globally. Much has been achieved during the past 12 months in the fight against COVID-19, but, as we enter 2021, there are considerable concerns about the emergence of a mutant version of the virus and the second wave that we are now facing.
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Residential for rent developer and manager Watkin Jones today posted FY 2020 results, in which profits, cash and dividend beat our estimates by c. 4 - 5%. We have maintained our FY 2021E forecasts and introduced estimates for FY 2022E. Our growth assumptions are supported by further evidence in the statement of a revival in forward funding by institutional investors for both the Group’s build-to-rent and student accommodation developments. A new strategy is aimed to trial the private residential sales division more to affordable housing, in line with WJ’s low-risk, capital-light model.
Companies: Watkin Jones Plc
The group’s year-end trading update highlights that the group is on track with its growth and expansion strategy. At the end of the year, a couple of COVID and Brexit-related delays to customer ordering were seen, which have reduced revenue by £0.7m. Nevertheless, operating profits are in line with expectations due to continued cost control. Our forecasts have therefore been adjusted accordingly. The investment case remains sound and this doesn’t alter our view of the company’s prospects, where we forecast a robust scale up over the next few years, focused on significant growth opportunities in the EVs, Medical and Aerospace markets.
Companies: Trackwise Designs Plc
Trackwise has announced that it expects FY20 revenues to be c £6.1m, which is lower than our estimate, reflecting disruptions to supply chains caused by tighter coronavirus restrictions and uncertainty about the Brexit deal. However, careful cost control means that management expects adjusted operating losses to be c £0.2m, in line with our estimates. We have updated our FY20 forecasts but leave our FY21 estimates, which are underpinned by an order worth up to £38m over three years from a UK electric vehicle (EV) OEM, unchanged.
InnovaDerma raised £4.0m to (i) strengthen the balance sheet following the impact of COVID-19 on current trading and (ii) grow its global Direct-to-Consumer (DTC) and E-Commerce capacity in the UK and new geographic markets, thereby enabling the company to accelerate sales and take advantage of the opportunities expected to exist post COVID restrictions being eased. With a clear plan for growth, to be executed by its new CEO, we introduce new forecasts for FY 2021 and 2022 that assume some gradual easing of restrictions in the UK in the spring, with an adjusted pre-tax loss of c.£0.9m in 2021 (positive EBITDA in H2) returning to c.£0.3m profit in FY 2022 on the back of revenues returning to pre-pandemic levels, including higher international contributions. We introduce a target price of 90p, with scope for this to be raised as the new CEO executes on the growth plan, which is based on a peer group EV/Sales multiple of 1.6x.
Companies: InnovaDerma PLC
Today’s Q1 trading update indicates that sales have levelled out at c.£2m per quarter, reflecting current lower levels of demand in light of ongoing restrictions related to the COVID pandemic. The reorganisation and cost reduction measures undertaken by management last year have enabled the Group to maintain a positive EBITDA and there has been a slight increase in orders in the new financial year. Zytronic entered the new year in a strong financial position with £14m net cash. The stable sales pattern should enable us to reintroduce forecasts in due course and the current rating remains very modest indeed based on preCOVID levels of profitability
Companies: Zytronic plc
The Character Group’s (Character) AGM statement confirms the strong start to the year noted in its preliminary results. Revenues in the first four months were ahead by more than 30% and management expects that profitability for the first half to February 2021 will be significantly higher than in the same period last year. While there are more challenges facing the Company in the second half, assuming these do not worsen the Board believes the Group will achieve current market expectations. Our forecasts for FY2021 were raised significantly in December and we are encouraged that despite the temporarily deteriorating macros, current market expectations are still valid. When some normality returns to the market Character will be exceptionally well positioned with a strong balance sheet and a product range in strong demand.
Companies: Character Group plc
This brief but important update has underlined that Galliford Try is coping admirably with the seemingly constantly changing COVID restrictions, with all sites open (as they have been since the start of the financial year in July 2020) and trading at “normal” levels – in line with management expectations.
Crucially, a return of profitability and dividends (as previously flagged) is expected with the half year results, due to be released on 4th March. Consensus is for a 2.5p dividend for the year ending in June 2021, growing rapidly to 4.0p for 2022 and 5.4p for 2023.
Companies: Galliford Try Holdings PLC
Today's news & views, plus announcements from JET, PSN, SONG, HWDN, MSLH, PAGE, WMH, ASC, BGO, CUSN, CAY
Companies: Bango plc (BGO:LON)Persimmon Plc (PSN:LON)
Tern plc* (TERN.L, 7.1p/£23.5m) Portfolio update: Strong business momentum (12.01.21) | Audioboom plc* (BOOM.L, 276p/£43.3m) Expanded content network (15.01.21)
Companies: Tern Plc (TERN:LON)Audioboom Group PLC (BOOM:LON)
The group has issued another positive trading update confirming full-year revenue 25% ahead of our original projection made in March and a LBITDA 39% lower than originally forecast and 81% lower than the previous year. We anticipate further revenue growth in 2021 but also an increase in LBITDA as management invests further in a number of growth initiatives. We expect the 2022 financial year to reflect the benefit of the strategic investment programme as the business progresses towards breakeven.
Companies: Eve Sleep PLC