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It will bounce at 1000p
RKT
What an incredible fall for a major stock we have seen in the last five week. Having sold on 13 March at 5207p. I put the same money back in at 4123.4p first thing this morning. I got 25% more stock after expenses. Have to recognise that this is catching a falling knife but on these terms I'm happy to take it on. When the selling dries up this stock will bounce, helped by the share buy-back programme.
Had dealings with these in the past and I was shocked at just how many chiefs there was. This is a company a shadow of its former self yet full to the gills with highly paid management. Avoid this one as it's not one for creating shareholder value.
Hi all,
I’d wait and not jump in to add more still at the minute. This geopolitical is going to continue and the markets are going to suffer if we have Iran doing what they say.
This share cheap, still, but then again the whole of the UK FTSE is cheap versus S&P I’d say as much as 20-30% based on P/E’s.
We also have the real possibility of no rate cuts in UK which will possibly be the case for USA too.
Inflation is still high, but we all know that when they lower rates, inflation undoubtedly rise again. It’s a conundrum …
I’m around 4% here, not increasing unless we get close to 3000-35000p.
I believe we’re looking at Jan/Feb ‘25 for rate cuts
Once I would have held onto this stock because I hate to realise losses and legal difficulties often get resolved with less impact than first thought. However, in this case I bailed out because I could invest my reduced capital in stock that were low for no good reason thanks to the under-appreciated London market. They were at 4451 on that day and of course my new investment has been pretty static, but at least it hasn't dropped! At some point I might return to RKT.
Conclusion
I remain confident that Reckitt Benckiser is a good investment over the long term. However, there are two issues we should not ignore – the technical picture on the one side and the litigations on the other side. Especially the lawsuits are a huge risk that is very difficult to assess.
To reflect my caution at this point, I will downgrade the stock to a “Hold” – and that is what I will do with my own shares: I will hold on to them as I still believe over the long run Reckitt Benckiser will be a solid investment but I would not purchase any additional shares at this point.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Cont'd:
The stock market is certainly not always rational, but as reaction to the news the market capitalization of Reckitt Benckiser dropped more than $6 billion hinting that investors are fearing a huge damage for the business.
At this point, companies like Bayer (OTCPK:BAYZF) or 3M Company (MMM) come to mind. Both are cautionary examples for businesses really struggling due to legal matters and in both cases the stocks continued to decline further and further and there is still no end in sight. If this is the path Reckitt Benckiser is going down, it probably would be best to get out of the stock right now.
Technical Picture
And it seems like Reckitt Benckiser is facing another problem – its own chart. Following the annual results and the litigation news, the stock declined to a 11-year low. And in the process of declining during the last few weeks, the stock broke through several strong support levels – probably explaining why the stock is declining so steep. For starters, the stock broke through several lows from the years 2018 till 2023, which were a strong support level until recently. Additionally, the stock broke through a long-time trendline that has been in place since 2000 and it also broke through the 200-month moving average.
At this point, after breaking through several support levels, it doesn’t look good, and we certainly must take into account the risk of even lower stock prices. The only glimmer of hope right now is the fact that we are trading at the October 2013 low (but this is not really strong support level). Aside from this low, we are currently at the 50% Fibonacci retracement when connecting the low directly following the IPO and the highs of 2017 and that could be a stronger support level.
But at this point I would not bet on Reckitt Benckiser already having found its bottom and the risk of further declining stock prices seems to be high at this point.
Intrinsic Value Calculation
But while the chart is not really a supporting factor for Reckitt Benckiser right now, we can argue that the stock seems to be really cheap at this point. When using the free cash flow of fiscal 2023 (GBP 2,258 million) and a 10% discount rate as well as 718.5 million outstanding shares, the company has to grow slightly below 3% annually in order to be fairly valued.
At this point, I would argue that Reckitt Benckiser should be able to grow about 3% annually till perpetuity. At least for fiscal 2024, management is expecting growth rates for operating profit that might exceed 3% growth. Hence, we can make the case that Reckitt Benckiser is at least fairly valued right now. And in theory I would assume Reckitt Benckiser being able to grow with a higher pace, but considering the results, the outlook and the lawsuits it might be better to stay on the side of caution.
Cont'd:
For the full year of fiscal 2023, Nutrition generated GBP 2,410 million in revenue – a like-for-like decline of 4.0% for the full year. But when comparing the fiscal 2023 result to fiscal 2021, we see 18.0% volume growth – a solid growth rate and fiscal 2022 must be seen as positive outlier. We also must point out that North America is performing great – when comparing to fiscal 2021 – while the emerging markets are struggling.
The other two segments however could report low-to-mid single digit growth rates. And at least when looking at revenue, these two segments are the most important for Reckitt Benckiser with each segment being responsible for more than 40% of total revenue. Hygiene generated GBP 6,135 million in sales in fiscal 2023 and reported 5.1% like-for-like growth and Health grew 5.0% like-for-like and generated GBP 6,032 million in revenue.
And the outlook for fiscal 2024 is similar to fiscal 2023 – not great but also not a huge disappointment. Revenue is expected to grow between 2% and 4% on a like-for-like basis. And while Health and Hygiene are expected to grow in the mid-single digits, the Nutrition business is expected to decline in the mid-single digits once again. However, adjusted operating profit is expected to grow with a higher pace than revenue.
Results and outlook were not perfect, but it was enough to tank the stock in the double digits. And the second major drop came in mid-March after news about the Mead Johnson litigations were announced.
Mead Johnson Litigation
Following earnings, the stock declined more than 13% and mid-March the stock was sent down another 14.6%. This time the reason were not quarterly or annual results, but news about an Illinois jury having ordered Mead Johnson – a subsidiary of Reckitt Benckiser – to pay $60 million to the mother of a premature baby who died after being fed the Enfamil baby formula produced by Mead Johnson.
And in my opinion, it is a huge problem that Reckitt Benckiser can tell investors that many cases had been filed against the company, but management is not able at this point to state a precise number of cases related to the safety and marketing of the Enfamil baby formula.
It seems like over 400 cases had been filed with the Chicago federal court, but there might also be cases involved that were filed against Abbott Laboratories (ABT) – the other major producer of baby formula for premature infants, which is also based in the Chicago area. And not surprisingly, Reckitt Benckiser is strongly disagreeing with this verdict and will try to fight it. Management is also expecting that some of the additional filed cases will be dismissed in a preliminary stage. Nevertheless, it takes only a few cases with a similar verdict (to pay $60 billion) to generate a huge financial damage to the company.
Reckitt Benckiser reported mediocre full-year results for fiscal 2023 as well as a mediocre guidance for fiscal 2024.
Aside from the results, Mead Johnson - a subsidiary - had to pay a $60 million dollar fine and investors obviously fear more lawsuits to come.
The stock is probably undervalued but at this point, we should be rather cautious about an investment.
In November 2023 I wrote my last article about Reckitt Benckiser (OTCPK:RBGPF) and I stated my optimism for the long run. And while we can certainly argue that four to five months is not really “the long run”, the stock performed horrible since my last article.
In the last few weeks, two major news stories seemed to have a big influence on the company and also on the stock price – the reported annual results for fiscal 2023 and the litigations about the infant formula of Mead Johnson (a subsidiary of Reckitt Benckiser). I will provide an update in the following article and assess if Reckitt Benckiser is still a good long-term investment despite the recent developments. At least the stock is now 20% cheaper than at the beginning of November 2023.
Annual Results
We start by looking at the last annual results, which were reported at the end of February. And although the results were not a complete disappointment, they were not great either. Revenue increased slightly from GBP 14,453 million in fiscal 2022 to GBP 14,607 million in fiscal 2023 – resulting in 1.1% year-over-year growth. And while this is a rather low growth rate, like-for-like growth was 3.5% for fiscal 2023 with volume declining 4.3% and price/mix increasing 7.8%.
However, operating profit declined 22.1% year-over-year from GBP 3,249 million in fiscal 2022 to GBP 2,531 million in fiscal 2023. And finally, diluted earnings per share declined from 324.7 pence in the previous year to 228.7 pence in fiscal 2023 – resulting in 29.6% year-over-year decline.
While operating profit and earnings per share declined, free cash flow increased from GBP 2,031 million in the previous year to GBP 2,258 million in fiscal 2023 – resulting in 11.2% growth. And as free cash flow is one of the most important metrics for any business this is actually good news for the business. Free cash flow especially increased due to a higher conversion rate – instead of 83% in fiscal 2023 it was 97% in fiscal 2023.
We can also look at the three different segments. The problem child remains to be Nutrition – at least when looking at year-over-year growth rates. But for the nutrition segment we still have to keep in mind the supply issue in 2022, which was a huge tailwind for Reckitt Benckiser. During the earnings call, management commented:
In Nutrition, we see a combination of the rebasing in U.S. and North American volumes following the competitor supply issue in 2022 and some market volume weakness in developing markets and I am going to go into that in a little bit more detail in a few more charts.
RKT is not just based on entamil
Found this on yawoo
What it does: Reckitt is a multinational fast-moving consumer goods manufacturer and marketer that owns brands including Finish and Gaviscon.
By Christopher Ruane. Blue-chip bargain or a falling knife – how best to describe Reckitt (LSE: RKT)?
The shares have moved down recently to their lowest price in over a decade.
There are good reasons for that, including a recent unfavourable legal judgement in the US relating to the company’s problematic infant nutrition formula business and sharply lower operating profit last year. Net revenue declined in the most recent quarter, due in part to accounting irregularities in a couple of Middle Eastern markets.
Clearly, management has a lot of work to do.
However, the business has a portfolio of attractive premium brands in categories likely to experience ongoing demand. It generates substantial free cash flow, is profitable with attractive margins and has been reducing net debt.
With a dividend of 4.4% and price-to-earnings ratio of 14, this FTSE 100 firm looks like offering good long-term value to me despite the risks.
What does the article say, please? Am not subscribing.
Fair and balanced: https://seekingalpha.com/article/4680531-reckitt-benckiser-maybe-caution-is-appropriate
I sold yesterday at a nice profit. If this drops to 40 I will be back in.
A 15% rise isn’t worth the risk. In my opinion,
I’ll buy if we go sub £40. Otherwise there’s better out there
It all depends on the hundreds of court cases in the US. If you know none of them will find against Mead-Johnson then I understand your confidence.
Ive bought in big at this cheap price. easy 15 percent rise over the next few weeks.
Yip … and with a third tranche of buy backs , plus director buys. Drop well overdone in my opinion
Looks like we've hit the bottom now rising nicely
GLA
USA is good at , controlling outside companies, there are 100 of pharma companies in USA, which are not even heard off with any cases
Waiting for sub £40
No. The worrying thing will be if the appeal takes longer to sort than all the other cases piling up.
Has anyone read anything about next steps and timings regarding the legal proceedings?
With this big drop in share price they'll be able to buy a lot more shares in their buy back programme!
NatWest dropped like a stone because Nigel farage spat his dummy out .
Compare that to implications of this.
Thank god I wasn’t in this stock compared to the collection of travesties I own .
I shall gladly pick up some of these after they plummet further. Those of you suffering holding this one since the drops, take solace in the fact that when it bottoms out, you own shares in a great company, that will undoubtably recover. And I will be alongside you, on the way back up. Good luck
£35 would be a nice entry lovely jubly