MSc Dissertation, Reckitt Benckiser Group PLC- A Fundamental, Technical and Quantitative Analysis PDF

Preview

Summary

Reckitt Benckiser Group PLC- A Fundamental, Technical and Quantitative Analysis. Final Dissertation....

Description

MSc Investment Analysis

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis. Daniel Olaoye Supervised by: Zhiyong Wu September 2013 Dip/MSc in Investment Analysis

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis.

1 CONTENTS 1

Contents......................................................................................................................2

2

Abstract.......................................................................................................................4

3

Introduction................................................................................................................5 3.1

History..........................................................................................................................6

3.2

The Company...............................................................................................................8

3.2.1

Products...............................................................................................................8

3.2.2

People...................................................................................................................8

3.3

The Industry.................................................................................................................9

3.3.1 4

Fundamental Analysis................................................................................................11 4.1

Corporate Governance Analysis................................................................................11

4.2

Company Information................................................................................................12

4.3

Industry Analysis........................................................................................................13

4.3.1

Strengths............................................................................................................14

4.3.2

Weaknesses........................................................................................................15

4.3.3

Opportunities.....................................................................................................16

4.3.4

Threats................................................................................................................17

4.4 5

6

Competition..........................................................................................................9

Economy Analysis......................................................................................................19

Technical Analysis......................................................................................................20 5.1

Historical Prices.........................................................................................................20

5.2

Trends........................................................................................................................21

5.3

Forecasts....................................................................................................................22

Quantitative Analysis.................................................................................................26 6.1

Risk and Return..........................................................................................................27 1

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis. 6.2

Capital Structure........................................................................................................28

6.3

Dividend Policy..........................................................................................................28

6.4

Financial Information.................................................................................................29

6.5

Ratio Analysis.............................................................................................................30

6.6

Valuation....................................................................................................................30

7

Recommendation & Conclusion.................................................................................32

8

References.................................................................................................................33

9

Appendices................................................................................................................36 9.1

Group income statement...........................................................................................36

9.2

Group statement of comprehensive income.............................................................36

9.3

Group balance sheet.................................................................................................37

9.4

General statement of changes in equity...................................................................38

9.5

Group cash flow statement.......................................................................................39

9.6

Earnings per share.....................................................................................................40

9.7

Valuation....................................................................................................................40

2

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis.

2 ABSTRACT Reckitt Benckiser Group PLC is a UK based multinational consumer goods company. It is the world’s largest maker of household cleaners among other products. It is based in Slough, Berkshire with products reaching millions of consumers’ homes in over 180 countries worldwide. Reckitt Benckiser dates back to the 19th century, where its roots develop from Johann A. Benckiser and Isaac Reckitt’s respective companies. After a few acquisitions along the way, both companies merged in 1999 to form Reckitt Benckiser. With high growth rates and expanding markets, Reckitt Benckiser is on track to be one of the world’s most valuable companies. Its former C.E.O., Bart Becht has been credited with the transformation of the company, focusing on core brands and increasing efficiency in its operations. This paper will analyse the reasons for such growth rates, evaluate its sustainability and estimate its performance for the next few years. This will be assessed with a combination of fundamental, technical and quantitative analysis in various aspects of the company’s operation. The fundamental analysis would aim to make sense of patterns using publicly available information about the company. This would include major news stories, announcements and observations that relate to the company and how such information affects the overall performance of the company. Furthermore, this would enable an informed projection into the performance of the company in the near future. In addition, the technical aspect would involve putting forward arguments that explain fluctuations of past stock prices. This would be crucial in estimating its future stock performance and the sustainability of Reckitt Benckiser’s large growth. Finally, a quantitative analysis would include the use of Reckitt Benckiser’s public accounts and financial records to find key ratios such as revenue growth, return on equity and earnings per share. This would confirm patterns and fluctuations in the fundamental and technical aspects discussed prior and provide a summary of its performance during the past few years and a forecast of future performance. Overall, this paper would aim to interpret information using the basic fundamental, technical and quantitative analysis and compare the performance of Reckitt Benckiser with the household goods sector and the market as a whole. 3

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis.

3 INTRODUCTION With a wide range of consumer products that spans across several countries, Reckitt Benckiser PLC is one of the world’s largest multinational companies that manufactures and distributes an extensive array of household toiletry, pharmaceutical and food products on an international scale. The company is based in Slough, Berkshire and operates in over 180 countries worldwide. Some of the company’s major products includes Vanish, Woolite, Calgon, Lysol, Harpic, Finish, Air Wick, Mortein, Gaviscon, Durex, Dettol, and Strepsils [ CITATION Rec13 \l 2057 ]. In recent years, Reckitt Benckiser has achieved and maintained high growth rates and, with a market capitalisation of over £31 billion, the company is on track to be one of the world’s most valuable companies. The transformation of the company has been credited to the company’s former C.E.O., Bart Becht, focusing on core brands and increasing efficiency in its operations. The company operates in the household and personal products industry, competing with companies such as Church & Dwight, Procter & Gamble and Clorox based in the United States of America, and McBride PLC and Unilever based in the United Kingdom. The ticker symbol used to identify the shares of Reckitt Benckiser’s stock is ‘RB’ and it was first listed on the London Stock Exchange (LSE) in 1888 as Reckitt & Sons. In addition, the company has been a constituent of the FTSE 100 index since the 23rd of October, 2007 [ CITATION Lon13 \l 2057 ]. For the past 5 years, the company has witnessed a significant increase in its stock price from an all-time low of about 2,221p in October, 2008, to an alltime high of about 4,850p in May, 2013. Currently, the company’s stock price is about 4,379p (as of the 9th of September, 2013)[ CITATION Blo13 \l 2057 ]. Some of the major names currently associated with the company includes Rakesh Kapoor (C.E.O.), Heather Allen (Executive Vice President, Category Development), Amedeo Fasano (Executive Vice President, Supply), Rob de Groot (Area Executive Vice President, ENA) and Adrian Hennah (Chief Financial Officer). Furthermore, the company is partnered with charity organisations such as Save the Children UK and Breast Cancer Campaign and also chemical research and education organisations such as the Royal Society of Chemistry and CEMS (Community of European Management Schools) [ CITATION Rec13 \l 2057 ].

4

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis.

3.1 HISTORY Reckitt Benckiser’s history spans across 150 years since the 19th century from a German and British heritage. “Reckitt and Benckiser both began life in the 19th century eventually merging over 100 years later in 1999 to become the world’s largest household cleaning products group” [ CITATION Dig13 \l 2057 ]. In addition, More than 50% of the group’s returns are generated from its Surface Care and Fabric Care divisions which consists of, but not limited to, products such as Cillit Bang, Vanish, Calgon and Dettol. Also, the group increased their product range after the £1.9 billion acquisition of Boots Healthcare International in 2005, with brands such as Nurofen, Strepsil and Clearasil. The company was founded in 1823 as Benckiser by Johann A. Benckiser with its core business derived from industrial chemicals. In England in 1840, Issac Reckitt began renting a starch mill in Hull, later buying it in 1848 and was then renowned for starch, washing blue and black lead for polishing, which led to expansion into other household products. Issac Reckitt passed away in 1862 at aged 70, leaving his business to his three sons, where they began developing the business in several countries around the world, beginning with Australia in 1886. 1888 set a milestone for the company as they began trading on the London Stock Exchange as Reckitt & Sons. In the United States of America, the production of Lysol began by Lehn & Fink Products in 1912, which was initially imported from Germany, and in the following year, Reckitt & Sons and J&J Colman - Atlantis Ltd set up a joint venture in South America. It was so effective that it was extended, to cover all trading outside the UK in 1921. Expansion into other brandnamed domestic products continued over the 1920s and, moreover, Reckitt & Sons merged with the Mason brothers and established the Chiswick Polish Company in the UK. 1932 became one of the most important years in the history of Reckitt Benckiser when Reckitt & Sons made the major decision to market and launch Dettol as a germicide which was also endorsed by the medical profession. Additionally, one of their most popular products, Harpic, was born when they acquired Harpic Lavatory Cleaners. In 1938, Reckitt & Sons merge with J&J Colman to become Reckitt & Colman Ltd. Air Wick and Finish launched in the United States of America in 1943 and 1953 respectively, and in 1954, Reckitt & Colman Ltd merged with The Chiswick Polish Company, expanding their range of household products.

5

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis. As Benckiser began to expand, the company diversified into industrial cleaning products and consumer goods in 1956, and also introducing a water softener for washing machines called Calgon. According to Reckitt Benckiser, Gaviscon was accidentally discovered during scientific research by a Swedish doctor and launched in 1965. Benckiser as a company continued to expand into the consumer goods through acquisitions and divestitures such as buying Mira Lanza Spa and Panigal Spa, in Italy and purchasing S.A. Camp Group, in Spain in 1988 and 1989 respectively. Likewise Reckitt & Colman continued to grow in size and market share when the company acquired an American household products group, Boyle-Midway, in 1990 with brands such as Woolite, Easy-Off, Sani-Flush, Wizard and Old English. The company also acquired the famous domestic antiseptic brand in the USA, Lehn & Fink Products, which includes Lysol in 1994. Benckiser, in 1991, begins expansion into Eastern Europe and by 1996, they sustained the growth into the Baltic countries, Belorussia, China and Israel. The year 1999 was the year that established the current brand of Reckitt Benckiser as Reckitt & Colman and Benckiser was merged, the group then became the world No.1 in the household cleaning product sector. The next few years began a large-scale streamlining of the group’s core business sectors, with acquisitions of companies in Indonesia and Korea, and disposal of their non-core businesses such as Dr Becher and the firelighter businesses. In 2005, they launched Cillit Bang in 68 countries, and in the following year, completed the acquisition of Boots Healthcare International for about £1,926 million, gaining a new platform for growth in the lucrative Over the Counter (OTC) healthcare market. A few years later, the acquirement of Adams Respiratory Therapeutics, Inc. was completed which enable the company to participate in the American over the counter market with Mucinex. In 2009, Reckitt Benckiser launched its new corporate brand identity, 'The Power behind the Powerbrands' and in the following year, acquired SSL International adding Durex and Scholl to their product list. Bart Becht stepped down as C.E.O. in 2011 after over a decade and was then replaced by Rakesh Kapoor. Moreover, in 2012, Reckitt Benckiser announced a new strategy to maintain their dominant market position, along with a new vision and purpose: “Our vision is a world where people are healthier and live better. Our purpose is to make a difference by giving people innovative solutions for healthier lives and happier homes” [ CITATION Rec13 \l 2057 ].

6

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis.

3.2 THE COMPANY Reckitt Benckiser is a high growth consumer company with operations in various countries all around the world. With a vision of a healthier world, better livelihood and a purpose to make a difference by providing the tools for healthy living, the company creates shareholder value and defines the objectives of the company. With years of constant growth, 2006 saw the group’s first major acquisition with the £1.9 billion investment in Boots Healthcare International. The reason behind this acquisition was the theory that a successful consumer goods company is more able to profitably market a retail healthcare products than pharmaceutical companies. What's more, healthcare products tends to have a stable longterm innovation cycle, which is backed by medical research claims, regulatory endorsements and exclusive rights to production. Through products such as Strepsils, Nurofen, and Clearasil, the acquisition has delivered Reckitt Benckiser with a new process of improving and maintaining large growth and margins. [CITATION Inn08 \l 2057 ]. 3.2.1 Products Vanish, Dettol, Durex, Strepsils, Gaviscon and Air Wick are just 6 of the company’s 19 “Powerbrands” which are responsible for about 70% of the company’s net revenues. Product categories range from household domestic products such as vanish and Dettol, to medical products which includes Strepsils and Gaviscon. With constant focus and innovation on the group’s power brands, they have been able to sustain growth and expand especially in emerging markets such as Brazil, Russia, India, China as well as the Middle East and Africa [ CITATION Rec13 \l 2057 ]. 3.2.2 People The company employs about 37,800 employees with a revenue per head of about £205,820. The most prominent staff and board members of the company includes Rakesh Kapoor, the C.E.O., Heather Allen, Executive Vice President, Category Development, Amedeo Fasano, Executive Vice President, Supply, Rob de Groot, Area Executive Vice President, ENA and Adrian Hennah, Chief Financial Officer[ CITATION For13 \l 2057 ]. The former C.E.O., Bart Becht, who had previously worked at Procter & Gamble, had been in the company since its inception in 1999 during which he improved the company share price performance, and increased the profitability of the business[ CITATION Tre12 \l 2057 ].

7

Reckitt Benckiser Group PLC: A Fundamental, Technical and Quantitative Analysis.

3.3 THE INDUSTRY Reckitt Benckiser leads the industry sector in the manufacture and sales of household cleaning products. This is as a result of an average sales increase of 7% year-on-year. Compared to the 13% decline of the FTSE 100 index in 2008/2009, the group has been able to achieve a share price rise of 356% since its formation. “From its European origins it continues to expand globally with its brands now available in more than 180 countries. Nearly half of its revenues now come from outside its home markets, with the US and Australia accounting for 28% of net revenues and developing markets 18%.” [CITATION Inn08 \l 2057 ]. With a passionate mind-set regarding innovation, Reckitt Benckiser has been to generate 40% of net revenues from products which are less than 3 years old. The group maintained momentum by introducing new product ranges across major brands, with a large number of line extensions and continuous roll-out in various constituencies. Finally, with the establishment of what it calls its Power Brands, the growth across the company is outperforming much of the industry sector, which has led the company to be recognised as the number one or two brand in 75% of its operational markets [CITATION Inn08 \l 2057 ]. 3.3.1 Competition Personal care, paper products, laundry, oral care, and household...