EUR 850.00 For Business Accounts Only

Morningstar | Expected Weak 1Q for RB but Growth Should Accelerate Throughout the Year; Shares Offer Upside

RB is tracking below our revenue growth forecasts for the full year after the first quarter. Consolidated like for like revenue of 1% is well below the 2.8% we have estimated for the full year and the 4% we believe the business can achieve in the long-term, but there were several reasons why this is likely to be short term in duration. The value of the Mead Johnson acquisition was evident, with 5% like-for-like growth, meaning IFCN was the only division performing in line with our medium-term expectations. The strong price/mix in this segment is a key source of our wide economic moat rating. We believe RB is undervalued, with investors pricing in a worst-case scenario relating to potential fines by the Department of Justice over Indivior's marketing practices.

With IFCN having returned to reasonable levels of growth, investors’ attention will now turn to weakness elsewhere. Sales in the OTC segment were well below-par, declining 9% on a like-for-like basis, although we believe this had largely been anticipated by the market. The flu season was weak in both the U.S. and Europe, although management noted that Mucinex also lost some share to private label in the quarter. This is a reminder that while OTC possesses brand loyalty at the higher end of the consumer product spectrum, there is a limit to pricing. Management also stated, however, that Mucinex sales had gained momentum at the end of the quarter, and channel inventory should soon revert to consumer offtake levels, so we think it is reasonable to expect revenue to accelerate through the remainder of the year. Consolidated revenue should also accelerate as the IFCN segment cycles a manufacturing disruption in last year’s third quarter.

The 3% like-for-like growth in Hygiene Home is around the large-cap benchmark for these categories, and if sustained at this level, should facilitate a disposal either later this year, or during the tenure of the incoming CEO next year.