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Dettol-to-Durex distributor disappoints with mellow 2018 outlook

RECKITT BENCKISER (RB.) £59.08

Loss to date: 16%

Original entry point: Buy at £70.37, 12 Oct 2017

Our bullish call on consumer health and hygiene titan Reckitt Benckiser (RB.) is a disappointing 16% in the red. The shares have fallen despite full year results (19 Feb) revealing a return to sales growth in the fourth quarter, boosted by a strong start to the flu season, as well as a 7% hike in the total dividend to 164.3p.

Investors were disappointed as the Durex, Strepsils and Air Wick brands owner missed 2017 profit estimates and issued vague guidance for ‘moderate’ medium-term operating margin expansion.

In 2018, the £42.7bn cap is targeting 13% to 14% total sales growth thanks to the acquisition of US baby formula maker Mead Johnson, yet tepid 2% to 3% like-for-like growth looks on the cards amid tough market conditions.

Uncertainty regarding the magnitude and financing of mergers & acquisitions is also weighing on the shares; Reckitt could become involved in an auction for Pfizer’s consumer healthcare operations, which are up for sale.

Though market conditions are challenging, we remain fans of Reckitt’s brand strength and consistent dividend growth and note Liberum Capital’s £80 price target, one implying a healthy 35.4% upside.

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