The Lemon Fool

Hi folks,

I'm wondering whether to add Reckitt Benckiser (RB.) to our portfolio, since despite the emergence of various vaccines making it appear that the Human Race, will soon be saying goodbye to Coronavirus-19, I'm thinking that a branded goods company that produces cleaning products is a good one to hold in the light of the possibility of future pandemics, or just people's heightened awareness of surface cleaning and disinfecting.

My concern however, is whether products of this type (disinfecting and cleaning) are produced by other firms e.g. Unilever (ULVR), Glaxo (GSK) and Johnson and Johnson (NYSE:JNJ) which we already hold in our portfolio. Wondered if anyone on TLF has already done a product range comparison between RB. and ULVR, GSK and JNJ and could share their views.

thanks Matt

I'm running the sliderule over RB. right now. But looking at the price chart over a 5 year period, is making me wonder whether it is really going to be a love story. The SP at these points:

6307 27th November 2015
6392 25th November 2020

and peaks of about 8000 in the summers of 2017 and 2020, make me wonder if this is a Value share....but being as it's in the FTSE100, and there being some truth to the EMH, suggests that perhaps anyone can make a bottle of bleach, and that this share is lacking in a branded moat.

Matt

Doesn't seem to be going anywhere does it and it isn't even HYP-ish. The dividend growth rate has slowed as well.

https://www.dividenddata.co.uk/dividend ... py?epic=RB.

Might I suggest a review/consideration of Procter & Gamble as an alternative?

Funny, because I had a look at RB this morning as it appeared on my current favourite screen.

I have held in the past but I lost interest when they made the big acquisition a few years ago. I still have exposure through Fundsmith though. Anyway, it didn't take me long to consider it because I just can't get my head around the amount of debt they have and the HUGE adjustments they have been making to profits recently. Too many accounting shenanigans for me, I'd rather wait until that all comes out in the wash and you get something nearer to a clean set of results.

Instead, I have had my contrarian hat on and been starting a new position in Sage this week. I like the rotation that has happened since the vaccine announcements with all the beaten up cyclical stuff being bought and the quality end of the spectrum being sold. I'm happily a buyer of the latter!

All the best, Si

monabri wrote:Doesn't seem to be going anywhere does it and it isn't even HYP-ish. The dividend growth rate has slowed as well.

https://www.dividenddata.co.uk/dividend ... py?epic=RB.

Might I suggest a review/consideration of Procter & Gamble as an alternative?

Just as an addition to monabri’s comment, Phil Oakley on one of the latest Investors Chronicle podcasts was also saying that P&G would be a decent share to consider. Strong brands etc. and should be a boring but ultimately decent long term hold.

Cheers, OLTB.

I like boring....boring is good!

I imagine that when I finish looking at that the fin. statements and reading the past year's worth of RNSs I should get an idea of what the markets' participants have sniffed out.

monabri wrote:I like boring....boring is good!

I wouldn't call P&G boring. It's near its all-time high and is up 74% since I bought in March 2018. This was as a reaction to Fundsmith selling out because it didn't make much sense to me. I wouldn't buy more currently though.

All the best, Si

I don't often look at or have to think about my RB shares, though I note that the dividends I receive are hardly worth entering - they are quite small when compared with other shares.

I can contribute that since buying them in 2010, they have given me a return of 10.7% pa - that's not to be sniffed at. However, I notice that the SP has dropped a lot since the summer as the return was well over 12% in September.

Not sure what is going on.

Arb.

I've not bothered looking yet, but presumably something the RNSs between late july and now may explain it's current lack lustre.

Recent divid rises not much to write home about, but still bettering RPI. However, in nine years it has increased by 1.52 times - better than most of my shares.

I assume someone making the staple products they do can only push prices so fast before they fail, and that must ultimately be linked to wage inflation.

Arb.

I've held RB. for almost 10 years. Here is my essential data:

Date         Date                Share    Dividend
Paid         Announced           Price    pence   
21-Mar-11    Bought              30.63       0.00 
17-Jun-11    Bought              33.49       0.00 
29-Sep-11    25-Jul-11           34.64      55.00 
31-May-12    08-Feb-12           34.64      70.00 
27-Sep-12    30-Jul-12           34.84      56.00 
30-May-13    13-Feb-13           44.04      78.00 
26-Sep-13    07-Aug-13           46.75      60.00 
29-May-14    12-Feb-14           48.55      77.00 
25-Sep-14    28-Jul-14           52.30      60.00 
23-Dec-14    Indivior demerged   52.25       0.00 
29-May-15    11-Feb-15           58.15      79.00 
25-Sep-15    27-Jul-15           60.66      50.30 
26-May-16    15-Feb-16           63.54      88.70 
28-Jun-16    Sold                70.58       0.00 
29-Sep-16    29-Jul-16           71.19      58.20 
25-May-17    10-Feb-17           72.47      95.00 
28-Sep-17    24-Jul-17           76.23      66.60 
24-May-18    19-Feb-18           61.47      97.70 
27-Sep-18    27-Jul-18           67.38      70.50 
23-May-19    18-Feb-19           63.12     100.20 
26-Sep-19    30-Jul-19           64.45      73.00 
28-May-20    27-Feb-20           61.80     101.60 
29-Sep-20    28-Jul-20           76.18      73.00

The prices are at the date of action or the date of announcement, as appropriate. Price today £64.44, and the highest price in that list is in July 2017 at £76.23. The FTSE100 peaked on 22nd May 2018 at 7,877.45, and tonight is down about 19% from there. RB. is only down about 15% from the peak which I noted. On the day of the peak in the index, RB. was about £58, so it has beaten the market over that period.

TJH

tjh290633 wrote:Price today £64.44, and the highest price in that list is in July 2017 at £76.23. The FTSE100 peaked on 22nd May 2018 at 7,877.45, and tonight is down about 19% from there. RB. is only down about 15% from the peak which I noted. On the day of the peak in the index, RB. was about £58, so it has beaten the market over that period.

Good stuff.

I've held since July 2011. I sold the Indivior spin-co.

RB. is the cheapest share in my portfolio on a 5 percent free cashflow yield. It has a 17 percent ROCE over a ten-year average and a 12.4 percent CROIC. It also sports a 17 percent free cash flow margin over that decade.

After a loss in 2019, forecasts indicate ROCE recovering to 15 percent or so in 2020 and then rising into the high teens in 2022.

It's a shame Mead Johnson trashed the balance sheet but it'll recover!

Best wishes


Mark.

ADrunkenMarcus wrote:

tjh290633 wrote:Price today £64.44, and the highest price in that list is in July 2017 at £76.23. The FTSE100 peaked on 22nd May 2018 at 7,877.45, and tonight is down about 19% from there. RB. is only down about 15% from the peak which I noted. On the day of the peak in the index, RB. was about £58, so it has beaten the market over that period.

Good stuff.

I've held since July 2011. I sold the Indivior spin-co.

RB. is the cheapest share in my portfolio on a 5 percent free cashflow yield. It has a 17 percent ROCE over a ten-year average and a 12.4 percent CROIC. It also sports a 17 percent free cash flow margin over that decade.

After a loss in 2019, forecasts indicate ROCE recovering to 15 percent or so in 2020 and then rising into the high teens in 2022.

It's a shame Mead Johnson trashed the balance sheet but it'll recover!

Best wishes


Mark.

FYI I ran the numbers on RB. earlier today and the FCF yield is less than 4% based on the last 5 years average free cashflow. Free cashflow varies so much from one year to the next I never use a single year for calculating FCF yield.

I couldn't remember the name of the acquisition (Mead Johnson) but it really messed up the balance sheet. On that basis alone I don't find it an attractive proposition but I also really dislike the kind of massive adjustments they have made to the income statement in the past couple of years too.

No idea why you'd want to own it if you didn't already. I'm surprised Terry Smith didn't dump it. I'd buy Unilever every time.
All the best, Si

simoan wrote:No idea why you'd want to own it if you didn't already. I'm surprised Terry Smith didn't dump it. I'd buy Unilever every time.
All the best, Si

My IRR since 2011 has been 13%, so I have no complaints. Current yield is only 2.7%, but it is now my top ranking eligible share for topping up.

TJH

tjh290633 wrote:

simoan wrote:No idea why you'd want to own it if you didn't already. I'm surprised Terry Smith didn't dump it. I'd buy Unilever every time.
All the best, Si

My IRR since 2011 has been 13%, so I have no complaints. Current yield is only 2.7%, but it is now my top ranking eligible share for topping up.

TJH

That's great but it doesn't mean the returns will be that good in the future. Maybe it will, but you ignore the debt on the balance sheet at your peril. As you probably know I am not a HY investor so these things matter to me. In a zero interest rate world I'm pretty happy with a 2.7% yield but not when the finances look so stretched.

All the best, Si

Arborbridge wrote:Recent divid rises not much to write home about, but still bettering RPI. However, in nine years it has increased by 1.52 times - better than most of my shares.

I assume someone making the staple products they do can only push prices so fast before they fail, and that must ultimately be linked to wage inflation.

Arb.

This is a good point, Arb and it takes me back to the concern raised in my OP:

My concern however, is whether products of this type (disinfecting and cleaning) are produced by other firms e.g. Unilever (ULVR), Glaxo (GSK) and Johnson and Johnson (NYSE:JNJ) which we already hold in our portfolio. Wondered if anyone on TLF has already done a product range comparison between RB. and ULVR, GSK and JNJ and could share their views.

So could anyone here comment on this, to confirm or deny, that adding RB. to a portfolio which already holds ULVR, GSK and JNJ, is bordering on pointless, were my main objective to add a cleaning products manufacturer onto that portfolio. That is, putting current concerns about the numbers temporarily to one side.

thanks Matt

TheMotorcycleBoy wrote:So could anyone here comment on this, to confirm or deny, that adding RB. to a portfolio which already holds ULVR, GSK and JNJ, is bordering on pointless, were my main objective to add a cleaning products manufacturer onto that portfolio. That is, putting current concerns about the numbers temporarily to one side.

thanks Matt

I think you're looking at it wrongly. Why do you want to own a company with such a poor balance sheet? This is the Company Analysis board so you should at least consider the financials.I don't see the point of worrying about where it fits in your portfolio in that context. How much of the profit of RB. is cleaning products anyway? I have no idea but there's no point buying a company where you only get a small exposure to such products and large exposure to products that aren't. I suspect something like Clorox gives you more exposure to cleaning products and has a much stronger balance sheet and profitability metrics.

All the best, Si

simoan wrote:

TheMotorcycleBoy wrote:So could anyone here comment on this, to confirm or deny, that adding RB. to a portfolio which already holds ULVR, GSK and JNJ, is bordering on pointless, were my main objective to add a cleaning products manufacturer onto that portfolio. That is, putting current concerns about the numbers temporarily to one side.

thanks Matt

I think you're looking at it wrongly. Why do you want to own a company with such a poor balance sheet? This is the Company Analysis board so you should at least consider the financials.I don't see the point of worrying about where it fits in your portfolio in that context. How much of the profit of RB. is cleaning products anyway? I have no idea but there's no point buying a company where you only get a small exposure to such products and large exposure to products that aren't. I suspect something like Clorox gives you more exposure to cleaning products and has a much stronger balance sheet and profitability metrics.

All the best, Si

Following up my own question: RB cleaning products come under Hygiene (was Hygiene home) which accounted for just under 40% of revenue and operating margin for FY19. Main brands for cleaning are Lysol and Dettol, however the Hygiene category also includes Finish dishwasher products and Air Wick air fresheners. They do not give any further break down of the profitability of each brand.

All the best, Si

simoan wrote:

TheMotorcycleBoy wrote:So could anyone here comment on this, to confirm or deny, that adding RB. to a portfolio which already holds ULVR, GSK and JNJ, is bordering on pointless, were my main objective to add a cleaning products manufacturer onto that portfolio. That is, putting current concerns about the numbers temporarily to one side.

thanks Matt

I think you're looking at it wrongly. Why do you want to own a company with such a poor balance sheet? This is the Company Analysis board so you should at least consider the financials.I don't see the point of worrying about where it fits in your portfolio in that context. How much of the profit of RB. is cleaning products anyway? I have no idea but there's no point buying a company where you only get a small exposure to such products and large exposure to products that aren't. I suspect something like Clorox gives you more exposure to cleaning products and has a much stronger balance sheet and profitability metrics.

All the best, Si

Simon,

With all due respect, I like to tackle "Company Analysis" from several angles. Quantitative and qualitative. That said I'd like to consider i.e. analyse the other aspects of the firm, i.e. the brands, creditability of their board.

Anyway, what's the speil about Clorox? Where are they....what's their EPIC stock code?

Matt

The balance sheet is obviously something for me to consider, and I will at some stage. However, with 0.1% as being the UK's (and many others') base rate for the foreseeable, I'm not planning on stressing over it immensely. But TBF I've only filled in 2014-2016 of my sheet so far. I'm about to bung in 2017-2019