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Buy Reckitt for the long-term recovery

The company has restructured to separate the health and hygiene businesses as it continues to recover from a cyber-attack
October 18, 2017

A flat share price suggests that perhaps Reckitt Benckiser (RB.) shareholders foresaw the bad news from the consumer giant's third-quarter update on 18 October. A cyber-attack earlier this year and weak trading mean full-year sales are now expected to be flat on 2016. Revenue at newly acquired Mead Johnson, a nutrition business, is expected to be somewhere between flat and 2 per cent lower.

IC TIP: Buy at 6,974p

From the first quarter of next year Reckitt Benckiser will be split into two business units. The health division will be run by group chief executive Rakesh Kapoor, while Rob De Groot, currently executive vice president in Europe and North America, will look after the hygiene unit.

While sales have disappointed, broker Whitman Howard has upgraded its forecasts for full-year revenue from £10.9bn to £11.7bn, mainly to reflect the early completion of the Mead Johnson acquisition. The broker also suggests Reckitt could acquire Pfizer’s consumer health business, which would make the company the second-largest global consumer health company behind Johnson & Johnson.