Jack Sherwin – Aspiring Stock & Forex Market Analyst
I am working to build a published portfolio of stock and forex analysis with Samuel and Co Trading. I will be posting my analysis weekly, so keep your eyes peeled for my market outlook. I would like to open my analysis for discussion and feedback from the community.
Stock in question: LSE:RB (Reckitt Benckiser)
One of my personal favourite stocks to trade is being featured today, British consumer goods conglomerate Reckitt Benckiser. Formed in 1999 as a result of the merger between UK-based Reckitt & Colman and the Netherlands-based Benckiser NV. Most likely one of the farthest-reaching companies that you have never heard of, I expect you have almost certainly bought some of their products in the past. RB has some huge brands in its portfolio including; Dettol, Durex, Strepsils, Nurofen and Vanish, just to name a few. Having a market cap of £41.53bn Reckitt Benckiser is in the top 20 of FTSE100 stocks and is said to tick all of Warren Buffett’s stock pick boxes. Buffett is notorious for his success in his stock picks, averaging around 20% on his investments since 1965, and Reckitt Benckiser fits his criteria of having a low price to earnings ratio of 12.4%, as of February 2019, and a dividend yield of 2.94%. He looks for businesses to have an edge that ‘keeps competitors at an arm’s length’ such as a powerful product or brand with a loyal customer base, Reckitt Benckiser most certainly covers this with customers returning to purchase their branded household products.
In recent weeks, we have seen some significant downside to the stock on the back of the federal indictment against UK drug maker Indivior PLC. Accusations of illegally increasing prescriptions for its opioid addiction treatment Suboxone lead Indivior to a federal court in Abingdon, Virginia, where a grand jury said: “Indivior made billions of dollars by deceiving doctors and healthcare benefit programmes into believing its suboxone film version as safer and less susceptible to abuse than similar drugs”. They have been charged with health care fraud, mail fraud and wire fraud, if convicted, the U.S. government would seek forfeiture of at least $3B.
So you may be thinking, “but this isn’t Reckitt Benckiser it’s a different company”, well the company Indivior was actually spun off from RB in 2014 and the indictment has said that the illegal activity began before this spin-off and some activities even being “made or approved “ by Reckitt Benckiser Pre 2014. It is definitely worth seeing how the charges pan out against Indivior and how this affects Reckitt Benckiser’s share price in early May when a court hearing is scheduled.
Let’s have a look at the technicals. The green trendline you can see here on the daily chart was drawn on the weekly timeframe chart, starting in 2008, and has been confirmed with 5 touches, two of which being in the first months of this year in January and February. Some may argue that this trendline is not valid since it has been broken by wicks, however, there has not been a confirmed move below the line on the weekly chart that it was drawn. I have also drawn a support zone in at the yearly low of 5560p, this has previously acted as a support and arguably is now a confirmed support level in price. The previous lows of 5700p may also act as a psychological level from its whole number value.
As we can see here, based on estimated future cash flow, RB is significantly undervalued at 22% at the time of writing. Future cash flow estimates a potential to reach the 7450p level which has not been seen since late 2017 however this level is well below all-time highs of 8110p back in May 2017 which outlines how achievable this price target may be in the future. A contribution to this gain may be earnings growth which is expected to hit 7.7% next year, outperforming the estimated growth in the household products sector which is 6.9%.
It is seen that individuals who are involved in Reckitt Benckiser including members of the board of directors have been buying stock in the last 3 months. Elane Stock bought a fair 1,910 shares for a total of £119,047 on the 20th of Feb this year. Whilst this is not a significant monetary value in this context, the sentiment behind the purchase may be something to consider.
Getting into some number crunching here we have the historical debt of Reckitt Benckiser. In the current position, it is looking okay. Most importantly net worth is outstripping debt, although not by a huge amount with its debt levels totalling 80.5% of its net worth. The debt spike in the chart from 2017 was right about the time of selling its North American food division and as you can see this was quickly followed by a great net worth increase of £5B. Q1 IMS is due to be released on May 2nd so we can expect an update to these levels in that statement.
In conclusion, I think this would be a great stock for the watchlist and in my opinion, shows good growth potential. I will be keeping a close eye on the stock in the next weeks with developments in performance on the 2nd and court hearing for Indivior on the 6th. These could completely change my outlook so definitely something important to keep an eye on.
Reuters.com Indivior Shares Plummet, Reckitt hurt on U.S. charges over opioid prescriptions.
Indivior shares plummet, Reckitt hurt on U.S. charges over opioid prescriptions - Reuters
Reckitt Benckiser Results that outperform â RB
City A.M. Nine UK shares that tick all of Warren Buffett’s boxes Nine UK shares that tick all of Warren Buffett's boxes | City A.M.
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