Reckitt has potential but valuation too high, says Exane

16th Jun 2014 10:16

Exane BNP Paribas has upped its target price for consumer products group Reckitt Benckiser but has kept a cautious stance, saying that the stock's valuation is too high.The bank said "a new Reckitt is emerging" with Reckitt Benckiser Pharmaceuticals (RBP) likely to be shortly spun off."The bull case at Reckitt is simple: an estimated circa 40% of core [operating profits] is now generated in highly-valued consumer health care and this will only further increase as Reckitt utilises its great acquisition skills and consolidates."However, it added that while there are opportunities for consolidation for Reckitt, "material options of quality are increasingly scarce".Nevertheless, with its core underlying mid-term earnings growth profile at only 7% per annum the company "needs to acquire"."The Reckitt story is not a bad one, but with the shares trading at 20 times [core estimated earnings for 2015] for a 7% underlying mid-term earnings grower, we believe it is more than priced."Roll-up stories are good, but less so when good assets are scarce and many are playing the same game."Exane's target price has been lifted from 4,500p to 4,900p, which represents downside from the 5,185.55p share price as of Monday morning (up 0.1% on the day).BC