Broker snap: Reckitt rumours a worry for SSL

19th Nov 2009 11:24

Bid speculation that Anglo-Dutch household goods maker Reckitt Benckiser is contemplating a merger with US peer Colgate-Palmolive could be bad news for the share price of Durex condom firm SSL International.'If the rumours that RB's [Reckitt Benckiser's] target is Colgate-Palmolive turn out to be true, then the bid premium that has historically been attached to SSL's share price will be unwarranted,' reckons stockbroker finnCap.The broker notes that SSL currently trades on a full year consensus price/earnings ratio of 20.6x, while the Consumer Non-Durables Sector is on a PE of 14.7 and the Household & Personal Care Sector is on 16.1.'We suggested taking profits on 13 October based on a heady valuation compared to its peers. At the time of the H1 [first half] trading update sales were behind estimates but the 'bid premium' supported the share price,' finnCap said. 'To be in-line with the Personal Care sector at 16x earnings, SSL's share price should be nearer 515p,' the broker adds.The bid premium of SSL is likely to disappear if Reckitt bids for anyone else, making SSL's shares a 'sell' in the eyes of finnCap.