One of the few companies left standing in the FTSE this morning is hygiene products maker Reckitt Benckiser (LSE:RB). One look at UK super market shelves over the weekend explains the popularity of Reckitt Benckiser stock, as the toilet roll, sanitizer and disinfectant sections glared back at customers, completely empty.
The company’s top brand, antiseptic Dettol, was getting difficult to get hold of already last week as both retail and larger scale buyers such as caterers stockpiled the product. The company’s brands also include Strepsil, bleach cleaner Harpic, and Durex – I’ll leave you to work out which one of these would be the most useful if the UK goes into a full blown lockdown.
The dip in Reckitt Benckiser before coronavirus
Although Reckitt Benckiser is an established name in its segment, its growth was dealt a blow three years ago when it bought baby milk maker Mead Johnson, overestimating its capacity to grow in the Chinese market. The arrival of competitors in China and the slowdown of local birth rates left the firm struggling to expand there as it planned.
Reckitt Benckiser eventually decided to draw a line under its losses with a £5bn impairment charge declared this February. Share prices mirrored the pre-Brexit uncertainty and a decline in sales alongside the difficulties faced by Mead Johnson – they dropped from a peak of 8,017 in mid-2017 to 5,658 in spring of 2018. Since then Reckitt Benckiser stock has recovered a little bit but never got back to the 2017 highs. Eventually last week the share price dropped to a five-year low, finally creating a good entry point for the stock.
What RB will have going in its favor going forward is that the impairment charge will draw a line under the Mead Johnson acquisition, allowing the company to start focusing on other products more than baby milk.
Laxman Narasimhan plans turnaround
New chief executive Laxman Narasimhan has already vowed to spend £2bn to revive growth across the group, addressing some of the firm’s weak points like underinvestment in supply chain management and the product pipeline.
The coronavirus has created an unprecedented demand for Dettol and Reckitt Benckiser’s other hygiene products, which will go beyond the momentary stockpiling.
One of the unanswered questions about the virus is whether it will come back in the winter even if it is stopped before the summer, and at which level of strength? Also, once the worst of the virus spread is over – and in China it took just under two months – the collective shock will leave people sufficiently worried about potential future diseases that higher levels of hygiene are likely to remain in place for months to come.
Other firms are reading the tea leaves the same way, French luxury group LVMH for instance plans to produce its own hand sanitizer. However, Reckitt Benckiser will have the advantage of being the owner of a number of well-established recognizable brands that should help its maintain market share going forward.