Reckitt Benckiser PLC management’s frustration that the market's lack of love is likely to be extended as the shares received another downgrade, with analysts also slamming the ‘mystifying’ lack of chief executive appointment six months after the departure of Laxman Narasimhan.
There were two slightly disparaging notes on the Durex, Clearasil and Air Wick maker on Monday morning, with Deutsche Bank removing the shares from its ‘buy’ list and moving to a ‘hold’ rating, with target price remaining 6500p.
Deutsche analyst Tom Sykes said last week’s results came with “what may end up being conservative guidance, however, on paper there is no EPS growth” for the 2023 financial year.
While the second half of the year should see some earnings growth, “there is the risk of a much weaker next cold & flu season and share loss in US infant formula”.
Concerns over these factors are expected by Sykes to hold back any re-rating and with a stronger end to this cold and flu season would make it “more difficult” for the shares.
On the plus side, the analyst noted that Reckitt and other consumer staples companies are getting “cost relief” by passing on inflation to customers “so we are not overly negative, however, we feel there are limited catalysts for a near-term re-rating”.
Over at Jefferies, the uncertainty of the identity of the next CEO “is mystifying”, said analyst Martin Deboo, given the presence of plausible internal candidates capable of completing the Narasimhan project and the fact that Unilever who started at the same time have already identified an external successor.
With Reckitt shares remaining in the “valuation doldrums”, despite beating expectations for the fourth quarter of last year and giving guidance supportive of the City consensus, Deboo said: “We sense frustration from RKT as to why the market isn't warming to the turnaround”.
But he said there are “plenty of question marks” around underlying volume growth, the path to mid-20s profit margins and “perhaps most important of all”, who is to lead the company.
With the shares’ valuation multiples testing new lows relative to the US peer group of Proctor & Gamble, Colgate Palmolive, etc and is back at 10-year lows relative to the Europeans Unilever and Henkel, Jefferies reported “interest from value-minded investors intrigued by the turnaround potential”, but kept its ‘hold’ rating but upped its share price target to 5,870p from 5,620p.