Thursday tips round-up: Reckitt Benckiser, Tesco

17th Apr 2014 07:30

Consumer goods giant Reckitt Benckiser's first quarter results may have satisfied market expectations and its consumer health business - its main engine for growth - is doing well enough, with revenues growing by 11 per cent during the most recent reporting period. As well, the firm is aiming to float its pharmaceutical side. No less important, and under-appreciated by investors, one must also factor in its putative offer for Merck&Co.'s over-the-counter (OTC) health products unit, which would transform its own growing healthcare division.On the negative side of things, the latest numbers showed how like-for-like revenue growth, if one excludes the pharmaceuticals side of things, of four per cent, was nearly completely wiped out by fluctuations in foreign exchange markets. The shares are trading on about 19 and a half times this year's earnings for the core business. That does not suggest much to go for, The Times' Tempus writes. Shares in Tesco rose yesterday despite reporting another drop in both sales and profits. Yet despite that, and the dividend yield which it offers - approaching five per cent plus - it is too soon to call a bottom in the shares. The outfit continues to be bedevilled by multiple headwinds, including competition from discounters and falling real incomes across the nation. As well, the strategy does not appear to have changed materially. For now, the grocer seems to be concentrating on cutting its prices sharply - as the company itself describes it - and cutting back significantly on its investments in Europe. Those reductions, however, do not really sound like enough. In fact, if it wanted to the firm could re-invest up to £1.5bn in price cuts. Not to be missed either, the value of the dividend is being eroded by inflation. Tesco needs to go back to its roots. As its founder jack Cohen used to say "pile it high, sell it cheap". Given the lack of a change in strategy the shares continue to be a 'sell', says The Daily Telegraph's Questor column. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB