It is not a word that appears often in corporate trading statements, but “nice” has been used several times now by RB, Reckitt Benckiser as was, in the context of margins that will enjoy “moderate but nice” growth. The first-quarter trading statement had nothing more to say on this, but analysts take it to mean something in the region of 40 basis points.
Such movements are hugely significant in the context of large global consumer groups such as RB, for which modest margin growth has an impact on the bottom line.
RB, along with its peers in that category, is benefiting from the lower oil price. This puts more money in the pocket of consumers in emerging markets, while cutting the energy costs of production. RB is also enjoying the effect of a greater focus on healthcare, which is higher-margin, and the early impacts of its “Supercharge” cost-cutting programme, which will deliver annual savings of £100 million to £150 million by 2017. Healthcare was the outstanding performer in the first quarter, showing like-for-like revenue growth of 13 per cent, helped by that greater focus and a strong cold and flu season — figures from America’s health authorities suggest that hospital admissions for flu almost doubled this year.
Hygiene achieved more modest 3 per cent growth. Brands such as Dettol and Harpic are doing well in emerging markets from health and hygiene initiatives, but others in the developed world were hit by unhelpful promotional offers in supermarkets.
Home, which includes brands such as Vanish and Air Wick air fresheners, fell by 1 per cent. This remains a drag. With RB having demerged its pharmaceuticals business, which now trades on the stock market as Indivior, analysts are now wondering if this will be the next to go. Not immediately, although any M&A activity inevitably will be tilted towards healthcare.
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RB shares have been strong performers this year, along with its global consumer goods peers. Off 10p at £59.91, they sell on 24 times’ earnings and are up 14 per cent so far this year. This is a challenging multiple; investors might consider taking some profits.
Revenue £1.2bn
Earnings £222.4m
MY ADVICE Take profits
WHY Shares have come on a long way, and the rating looks challenging
Putting on a decent show
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The deal to buy Advanstar, for $972 million, was a brave one, even if it gave UBM leadership in the American exhibitions market. The most reassuring part of a generally reassuring update was that the integration was going well. Promised synergies of $10 million a year for putting this together with UBM’s existing events business always looked pessimistic and the assumption must be that these will amount to considerably more.
The strategy put in place by Tim Cobbold, the chief executive, in November, after the US acquisition was announced, continues. Smaller exhibitions have been closed, along with various peripheral marketing businesses; the larger events are moving ahead, the troubled Ecobuild conference in the spring in London enjoying an unspecified advance in revenues for the first time in some years. The weak spot, as ever, has been PR Newswire, the news dissemination service. Its performance in the quarter is described as merely satisfactory. UBM insists that there is a good business in there, but it will take time and effort to return it to acceptable growth.
UBM has already indicated that revenues this year will grow at a lower rate because of those disposals. The shares, up 5½p at 548p, have been a strong market since the Advanstar acquisition was announced, as have rivals in the media sector, such as Informa.
They sell on less the 14 times’ earnings. That hardly looks cheap, but they are worth tucking away as the long-term story unfolds.
$972m paid for Advanstar
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MY ADVICE Buy long term
WHY Shares have been strong performers, but the potential for improvement is still there
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