Reckitt Benckiser, which plans to demerge its pharmaceuticals business within the next twelve months, could also benefit from disposing of its homecare business - best known for Cillit Bang- for nearly £5bn.
That is the view of analysts at Morgan Stanley, who said such a move would allow the business to concentrate on its consumer healthcare operations. Lifting its price target from £51 to £56, the bank said:
We expect Reckitt's health division to remain one of the best growth stories across European staples with ongoing growth in line with the last three-year average of 8%. Near-term momentum should be supported by easing comparisons and a strong innovation lineup; long term we expect Reckitt to be a consolidator in this fragmented market - with in-fill deals (the agreement with BMS in Latin America is a good template) implying a positive mix on the sales growth and margin profile.
In addition to acquisitions in consumer health, we think Reckitt could over time consider changes to the rest of the portfolio, specifically the home division (21% of core sales) given its less attractive growth outlook. While near-term focus will likely be on improving performance, home's importance to the group is set to diminish. We estimate that home could be worth £4.1bn to £4.7bn in a disposal. This would strengthen Reckitt's acquisition firepower to £10bn and if accompanied by acquisitions in health, we estimate could take health to well over 50% of core earnings before interest and tax.
Reckitt is steady at £52.50 in a falling market.
