Broker snap: SSL deal should enhance Reckitt's earnings

21st Jul 2010 12:37

Commerzbank is sticking with its neutral stance on household goods maker Reckitt Benckiser after the company announced the earnings boosting acquisition of foot care and prophylactics maker SSL."Combining SSL's strong brands (Durex and Scholl) and Reckitt's distribution power should allow paying £2.5bn, i.e. an EV/EBITDA [enterprise value/earnings before interest, tax, depreciation and amortisation] 2011E [2011 estimate] of 15x," Commerzbank suggests. "The deal should increase EPS [earnings per share] by 3% this year due to low funding costs. However, given the current tough consumer environment in Europe which should be reflected in the Q2 [second quarter] results we maintain our Hold rating," Commerzbank Andreas Riemann said.According to Reckitt, synergies should amount to £100m by the end of 2012. "In light of £126m operating profit this seems an ambitious target in our view but could add another 5% to EPS," Riemann adds.