- New growth targets
- Only health volumes rise
Reckitt Benckiser’s (RKT) surprise announcement of a £1bn share buyback programme wasn’t enough to satisfy investors on update day, with the consumer goods giant’s shares slipping after it reported worse-than-expected sales volumes in its third quarter.
Like-for-like (LFL) net revenue rose by 3.4 per cent to £3.6bn in the quarter against last year, driven by the performance of the hygiene and health divisions. But on a reported basis, net revenue fell by 3.6 per cent as a weak quarter for the nutrition division and foreign exchange headwinds dragged down results. Actual nutrition revenue fell by 15.4 per cent from the tough comparative period in which the company benefited from supply problems at Abbott Laboratories (US:ABT).
Overall volumes fell by 4.1 per cent, highlighting investor concerns that consumers have traded down to cheaper own-brand products. Nutrition volumes contracted by 15.7 per cent against what management described as “high unsustainable peaks last year”. Health volumes were up by 3 per cent, but hygiene volumes were down by 3.4 per cent, albeit trends are improving.
The share buyback, combined with new growth targets set out in a fresh strategy, presents a bit of a mixed picture for prospects under new chief executive Kris Licht. The new boss, who took up the reins at the start of October, has extended the target of mid-single-digit LFL net revenue growth from 2025 to sustained growth over the medium term. But RBC Capital Markets analysts argued that the replacement of a mid-20 per cent margin target with the aim to "grow adjusted operating profit ahead of net revenue" represents a "probable reduction in medium-term margin guidance".
On a more short-term horizon, management kept guidance for the full year unchanged. The board still expects LFL net revenue growth in a range of 3-5 per cent, and an improvement in adjusted operating margins.
The shares are valued at 17 times consensus forward earnings, according to FactSet. This is cheaper than the five-year average of 19 times, but we see little inducement for a recommendation change. Hold.
Last IC View: Hold, 5,719p, 26 Jul 2023
