MIDAS SHARE TIPS: Do you want your winnings to sparkle? Try the cleaner Reckitt Benckiser fighting Covid
No sex, we are cleaning! That was the message of the Anglo-Dutch household goods company Reckitt Benckiser when it released its first half-year results this week.
Reckitt owns brands we’ve all seen a lot more lately, such as Dettol and Cillit Bang.
Over lockdown, many of us have become more obsessed with the R-Rate than anything with X-Rated, so while the disinfectant arm is cleaning, the company’s Durex condoms company has slackened.
Cleanup: Reckitt Benckiser was at the center of the Covid fight with cleaning brands including Cillit Bang
Does not matter. New CEO Laxman Narasimhan has quickly got off the shelf when it comes to getting the most out of the ‘new normal’.
He has set up a very professional division from the beginning to help companies keep their premises spotless with customers such as Delta Airlines and Hilton Hotels.
He has also established a ‘Hygiene Institute’ to collaborate with a number of top public health universities.
Narasimhan says, “Covid-19 is likely to be with us in the near future, and as a society we are incorporating new hygiene practices to protect our way of life.
“RB’s goal, to protect, heal and nurture in the relentless pursuit of a cleaner and healthier world has never been more relevant,” he adds, probably rubbing his hands together with glee at the thought of all the cleaning products we will all use as we try to scrub away the virus (or drink it in the case of President Trump).
However, it’s not all glossy surfaces and sparkling profit margins at RB’s headquarters.
The company faces a legacy problem in South Korea, where deaths were caused by a humidifier disinfectant that led to respiratory problems. This has cost £ 40 million in the first half of the year and the company says there will be additional ‘expected costs’. Elsewhere in Reckitt, sales fluctuations tell a small story of how Covid changed our behavior.
Social distance leads to less sex and apparently also less cough and cold (ironically) which is bad news if you sell Durex, Strepsils and Lemsip. There is also lower demand for athlete’s foot powder and corn patches when we are all feet up, which has led to weaker sales of Rickitt’s Scholl products.
But we’re still loading those dishwashers after our lockdown baking marathons, so it’s not surprising that Finish sales have increased by 30 percent in some areas, while Lysol and Dettol sales are as high as you’d expect given the situation.
Laxman Narasimhan has set up a professional department from the beginning to help companies keep their premises spotless
In the future, Narasimhan expects more of the same, but cautions that there may be some effect on what he calls “pantry unloading.” This is the opposite of inventory building, when consumers suddenly realize that they bought 16 packages of Nurofen in March and don’t have to buy it again for a year.
He also continues to invest in the growth strategy he announced in February, which he says will lead to a temporary decline in margins, but ultimately lead to growth. Some of this investment has been pushed by Covid restrictions in the second half, but Reckitt’s medium-term outlook remains for continued single digit organic single-digit sales growth.
MIDAS VERDICT: The city found Narasimhan’s words Strepsil soothing this week, with all the analysts dealing with the stock increasing their target price. But as The Share Center’s Ian Forrest points out, the shares are firmly valued at 25 times earnings, and have already risen 27 percent this year at £ 77.06, with a return of just 2.2 percent. That makes them more appreciated than rival Unilever. On the other hand, we’re deep in Dettol until a vaccine is found, so there’s not much of a downside to sticking with these files.