Reckitt’s shares up ahead of Wednesday’s update
City Index April 14, 2014 10:10 PM
<p>Shares of Reckitt Benckiser are currently up some 3% (at time of writing) ahead of the company’s trading update scheduled for Wednesday. A number of […]</p>
Shares of Reckitt Benckiser are currently up some 3% (at time of writing) ahead of the company’s trading update scheduled for Wednesday.
A number of factors point towards the current attitude surrounding the company.
One of which includes today’s (14th April) reports, which suggest that the company has an edge over rivals in the battle for Merck & Co’s consumer healthcare business.
It’s well known that Reckitt, whose wide-ranging consumer health and hygiene brands include Clearasil, Nurofen and Veet, has intentions to expand that higher-margin business.
Just last month, the company acquired global rights to the K-Y brand from Johnson & Johnson for an undisclosed sum. Swooping on Merck’s consumer healthcare business (whose portfolio includes allergy product, Claritin) would certainly fit nicely with Reckitt’s current strategic plans.
The target, which reportedly could go for up to $12bn, would be a chunky bite but Reckitt does have the ample financial flexibility to make such a move.
Investor’s current attitude could be argued as another reason for the lift.
Indeed, investors look to be shunning stocks that have performed well over recent times, in favour of stocks with relatively weaker performance but boasting stable earnings.
Reckitt’s shares, prior to today’s lift, were down 6% from a peak in February (up around just 2% over the last year). That’s despite upcoming catalysts, including a potential sale of its pharmaceuticals business.
Expectations are of an eventual sale of the pharmaceuticals arm
In the face of declining sales and margins in its pharmaceuticals division (called RB Pharmaceuticals, which makes prescription drugs), Reckitt announced in October that it was placing that part of its business under strategic review.
The issue for that business came about after the loss of exclusive rights on its flagship product (called Suboxone), which, of course, saw others introduce generic products, consequently driving pricing competition.
The sentiment regarding a potential sale was further fuelled following the hiring of Howard Pien as chairman for that division in February.
If estimates are right, RB pharmaceuticals could rake in around £1.5bn and that cash could be used by the company to push further into higher growth businesses.
Certainly, the company’s mid-to-long term prospects seem sound. But come Wednesday, potential negative factors – for example, impact of emerging markets slowdown and further deterioration in RB Pharmaceuticals – means that there’s scope for the current positive sentiment to soon subside.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.