Reckitt Benckiser Group PLC (LSE:RKT, ETR:3RB) quarterly results on Friday may have a few pick-me-ups for investors, with numbers from the Strepsils and Nurofen maker also given context from rivals Unilever and GlaxoSmithKline earlier in the week.
Top shelf of the bathroom cabinet in the news is likely to be potential news on RB’s infant nutrition business, where reports emerged this week that a sale process has been kicked off.
Potential price of around US$10bn (£7.9bn) were mooted in the Bloomberg report, with UBS analysts noting that this would equate to 15% Reckitt's current enterprise value of £53bn for a business estimated to account for 11% of group's profits.
Valuing this division at US $10bn would imply a valuation for the rest of the group of 14.8 times multiple, UBS said, representing a 20% discount to peers.
The Infant Nutrition arm, of which the Chinese portion was sold in September, made revenues in 2021 of around £2.2bn and around £370mln of underlying earnings (EBIT).
Analysts added that this sets up a hypothetical scenario “whereby Reckitt were to launch a share buyback program funded by the proceeds of the deal”, which they said could lead to the group's adjusted earnings per share being enhanced by around 6%.
The first-quarter numbers come two days after a quarterly update from FTSE 100 peer GSK (LSE:GSK), which is in the middle of spinning out its consumer healthcare arm, now called Haleon, which is the bit of the business that crosses over with Reckitt.
RB also reports a day after Unilever (LSE:ULVR) (who launched a failed £50mln tilt for GSK’s arm in January) posted numbers that were bogged down by cost and price matters, with the consumer goods group (which has home care and personal care crossover with RB) saying it expects to sell lower volumes this year as it is raising its prices to mitigate against the higher raw material costs.
Reckitt, where health brands include Durex, Clearasil, Dettol and Veet, and hygiene range encompasses Cillit Bang, Harpic, Calgon, Finish and Vanish, is also likely to be talking about higher input costs but the group was confident back at its February numbers that it could outdo its fellow Anglo-Dutch colossus.
While both companies said they were looking to pass on the “significant commodity inflationary pressures” to consumers, the big difference was that RB said it is “targeting growth” in operating profit margins for 2022 while Unilever warned that its margins would be down.
One of the main reasons for Reckitt’s confidence is that its produce range includes several higher-margins over-the-counter (OTC) products to help fight colds and flu, including Mucinex, Strepsils and Nurofen as the developed world restarts mixing in crowded cities again.
Barclays analysts expect a strong OTC growth in this quarter, driven by a “strong flu season” and lower comparative sales last year.
While GSK’s Haleon had a good quarter with sales up 14% on good US demand, industry sales data from Nielsen suggests RB could outdo this with Mucinex seeing high double-digit, or even triple-digit growth.
What’s more, Barclays sees a potential boost in US infant food, after news on contamination issues for rival Abbott.
“Although we do not yet incorporate this into our model, we think consumers switching could potentially add…6% to EPS this year”, with Nielsen data suggesting strong growth for the quarter.