Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) may be navigating a bumpy patch, but analysts at UBS believe the market is missing the forest for the air fresheners.
Following a broadly in-line Q1 update yesterday, shares in the consumer goods group slid 5.7%, a reaction that UBS reckons fails to appreciate the strength of the core business and the longer-term upside.
Despite the market’s fixation on the struggling Essential Home division, which shrank 7% in the quarter, UBS maintains a bullish stance. Its 7,700p price target implies nearly 65% upside from current levels.
The core of the business, accounting for the lion’s share of turnover, delivered 3.1% like-for-like growth despite seasonal headwinds and destocking in Europe and North America.
Emerging markets, now nearly 40% of the core, grew 10.7%, comfortably beating expectations.
Investors appear rattled by signs that the sale of Essential Home may be delayed.
Reckitt has hinted that current market conditions could push back its plans to offload the division by year-end.
UBS argues that this risk should not eclipse the main event: the robust performance of the remaining business, improved margin visibility and better-than-expected results from infant formula brand Mead Johnson.
The Fuel for Growth programme, aimed at squeezing out efficiencies, is expected to add 80 basis points to the margin this year.
Meanwhile, potential new US trade tariffs will have only a negligible effect on Reckitt’s cost base, the company says.
With strong fundamentals and a focused long-term strategy, UBS believes Reckitt’s rerating story remains intact, despite the current market static.
In late morning trading, the shares were up 1% at 4,708p.