Stock of the week: Reckitt Benckiser
Reckitt Benckiser, best known for its household brands such as Nurofen, Cillit Bang and Vanish, is in advanced talks to buy baby food maker Mead Johnson for $16.7 bn. Following the announcement, Reckitt Benckiser’s shares jumped 3.7%. Investors will be interested to know that this acquisition will move the company into a new market, which Mead Johnson is a big player in.
The firm has a strategy of increasing exposure to emerging markets, which is already bearing fruit. Following the launch of a £100m marketing drive, Reckitt Benckiser reached its target of generating 50% of revenues from emerging markets. Investors should appreciate that the group plans to concentrate increasing its market exposure in 16 countries throughout a five year plan.
We have long been fans of the company for the lower risk investor, despite its high rating and comparatively low yield. The group has been an excellent and consistent performer over the last 16 years although it has been criticised for not having enough exposure to emerging markets. Management have taken this on board and now the drive into the higher growth regions is paying dividends. They are also expanding and focussing on the health and hygiene businesses where margins are higher. We therefore recommend this stock as a ‘Buy’.