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 (LSE: RB) (NASDAQOTH: RBGPF). I'll also discuss whether these positive factors make this FTSE 100 household-goods giant a worthy investment today.
Unilever -- 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 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'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 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'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.
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