LONDON — There are things to love and loathe about most companies. Today, I’ll tell you about three things to love about Reckitt Benckiser Group Plc (LON:RB). I’ll also discuss whether these positive factors make this FTSE 100 household-goods giant a worthy investment today.
Unilever plc (LON:ULVR) — with which Reckitt is often compared — is considered an emerging-markets company par excellence. It’s certainly true: Unilever generated 55% of group turnover from emerging markets last year.
However, Reckitt Benckiser Group Plc (LON:RB) is also making impressive headway in these fast-growing economies. Last year, emerging markets accounted for 44% of core net revenue (excluding pharmaceuticals and food), and the company said it expects this to rise to 50% by 2015, a year earlier than previously targeted.
Reckitt’s profit margins are much superior to Unilever’s; in other words, Reckitt earns more profit on every £1 of turnover. Admittedly, Reckitt’s margins are boosted by its pharmaceuticals business, but even leaving that division aside, operating margin is 23% compared with Unilever’s 14%.
Historically, Unilever’s operating margin has been stuck at about 14% for at least seven years. Reckitt Benckiser Group Plc (LON:RB)’s overall margin has increased steadily from 20% to 26% over the same period.
Reckitt has a terrific record of making value-enhancing acquisitions: Boots Group’s over-the-counter medicines (including Nurofen, Strepsils, and Clearasil) for £1.9 billion in 2006, Adams Respiratory Therapeutics (owner of Mucinex, the No. 1 cough remedy in the U.S.) for $2.3 billion in 2008, and SSL International (owner of the Durex and Scholl brands) for £2.5 billion in 2010 have all proved to be excellent purchases by Reckitt.
If history is anything to go by, shareholders can look forward to a further uplift in Reckitt’s value as the benefits feed through from the company’s more recent acquisitions, which include Schiff Nutrition — a U.S. manufacturer of vitamins and nutritional supplements — for $1.4 billion.
A good investment?
I think both Reckitt and Unilever are great businesses. Let’s take a quick look at valuation. At a share price of 4,746 pence, Reckitt is trading for 17.7 times forecast earnings for 2013, compared to Unilever’s 18.8 multiple.
On that basis, Reckitt Benckiser Group Plc (LON:RB) looks the better value of the two. However, analysts reckon Unilever has somewhat better earnings-growth prospects for the immediate future, so there is perhaps not too much to choose between the companies.
Putting Reckitt Benckiser Group Plc (LON:RB)’s valuation into a broader context, it’s currently rated more highly than the average FTSE 100 company, but I think this top-quality business merits the premium.
The article 3 Things to Love About Reckitt Benckiser originally appeared on Fool.com.
G. A. Chester has no position in any stocks mentioned. The Motley Fool recommends Reckitt Benckiser Group and Unilever.
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