23 April 2025
If you are covering Reckitt’s Q1 trading update, please find comments below from Chris Beckett, head of equity research at Quilter Cheviot:
“Reckitt’s Q1 trading update reveals a mixed performance. The core business, which Reckitt plans to retain, is performing well with sales up just over 3%, driven mostly by price increases, though volumes have shown some growth. This indicates that the core business remains strong and undervalued at the moment.
“However, the segment of the business that Reckitt is trying to sell, known as Essential Home, is struggling. Sales in this division are down 7%, entirely due to a decline in volume, particularly in household sprays where market share is being lost. This poses a challenge for Reckitt as they attempt to sell this underperforming segment. The company has expressed hope to complete the sale this year, but market conditions could cause delays, especially for private equity firms trying to raise finance in the current bond market.
“On a positive note, Reckitt has maintained its guidance for the core business, which is reassuring. However, the litigation in infant nutrition continues to cast a shadow over the results. The major trial is currently in the pre-trial motions stage, with verdicts expected in early May. The outcome of these motions will provide insight into the industry's chances of success.
“While the litigation outlook is not as dire as last year, it remains a significant factor in why Reckitt’s stock trades at 14 times this year’s earnings, compared to 20 times for its consumer health peer, Haleon. Investors tend to favour these types of businesses as relatively defensive investments in the current market.
“Therefore, there are a couple of reasons why Reckitt appears optically cheap. If the litigation is resolved favourably and the company can secure a reasonable price for the non-core business, Reckitt could be an attractive investment. However, there is considerable uncertainty as the company navigates through this year.”
