Should I Invest in Reckitt Benckiser Group?

LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per year since Jan. 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities and today I'm looking at Reckitt Benckiser Group  (LSE: RB  ) , the health, hygiene, and home consumer products company.

With the shares at 4,658 pence, Reckitt Benckiser's market cap is 33,400 million pounds.

This table summarizes the firm's recent financial record:

Year to December 2008 2009 2010 2011 2012
Revenue (million pounds) 6,563 7,753 8,453 9,485 9,567
Net cash from operations (million pounds) 1,333 1,948 1,544 1,740 1,888
Adjusted earnings per share (pence) 160.9 198.9 229.4 249.9 267.6
Dividend per share (pence) 80 100 115 125 134

Around 56% of Reckitt Benckiser's core net revenue came from Europe and North America last year. That's a good mature-market base from which the company is pushing forward into fast-growing emerging markets, with some considerable success. In fact, around 27% of core net revenue came from Latin America, Asia, and the Asia-Pacific last year and 17% from Russia, the Middle East, and Africa.

Worldwide, people love the firm's "power" brands. Hygiene products, represented by names like Dettol and Harpic, provided 44% of that core net revenue; health products, like Durex, Strepsils, and Gaviscon, delivered 25%; and home products, like Vanish, Cillit Bang, and Calgon, contributed 23%.

All the firm's offerings have one thing in common: Customers buy them, they use them up, and they buy them again. Such platinum-plated repeat business makes me optimistic about the company's total-return potential from here.

Reckitt Benckiser's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:

  1. Dividend cover: adjusted earnings covered last year's dividend around twice. 4/5
  2. Borrowings: net gearing around 40% with net borrowings around operating-profit level.4/5
  3. Growth: revenue, earnings and cash flow have all been growing. 5/5
  4. Price to earnings: a forward 16.5 overstates growth and yield expectations. 2/5
  5. Outlook: satisfactory recent trading and a positive outlook. 4/5

Overall, I score Reckitt Benckiser 19 out of 25, which encourages me to believe the firm has potential to outpace the wider market's total return going forward.

Foolish summary
The firm scores well on my quality indicators. Such attractions have caught the eye of investors, who have driven the valuation up too far for my liking.

I'm keeping Reckitt Benckiser on watch for now, but I'm excited about a consumer-goods company featured in a new Motley Fool report prepared by our top analysts. The report highlights five shares with seemingly impregnable, moat-like financial characteristics and is called "5 Shares to Retire On." The shares featured deserve consideration for any investor aiming to build wealth in the long run. It's free for a limited period so, to download your copy now, click here.

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