Broker snap: Nomura reiterates buy on Reckitt Benckiser, 3,900p target

8th Nov 2011 12:45

Popular perceptions of Reckitt Benckiser's growth model are mistaken and there are other factors which favour the stock going forward relative to its peers, according to Nomura.Whereas many see the household goods maker as excessively exposed to Western Europe and North America, along with too much dependence on the "premiumisation" trend, Nomura argues that, historically, the company's business model has little to do with "trading the consumer up". Instead the company has relied on gross margin-accretive acquisitions and a strong focus on cost-saving initiatives.Furthermore, analysts at Nomura expect additional synergies/savings to come through over the next 12 months. Furthermore, as only 28% of the company's profits are derived from household categories in developed countries, they view Reckit's business model as offering superior resilience relative to peers. The firm's shares trade on a price/earnings ratio of 13.4 based on Nomura's earnings estimate for 2012, and 9.7 times 2012's projected enterprise value/earnings before interest, tax, depreciation and amortisation ratio, a 7% discount to US peers despite higher margins (RB 23% vs Proctor & Gamble 18.5% in 2010) and better growth (4% in 2010 vs Colgate 3%).For all of the above reasons Nomura reiterates its buy recommendation on the stock with a price target of 3,900p. The broker's recommendation on the sector currently stands at 'neutral.' AB