Business

Jeff Stacey is Bullish on Reckitt Benckiser Group Plc

Jeff Stacey is Bullish on Reckitt Benckiser Group Plc

Jeff Stacey, CFA, is the Founder and Portfolio Manager for Stacey Muirhead.

  • Investment Process
    • Global Reach
    • Independent research (stock pickers)
    • Concentrated (10-20 positions)
    • Unconstrained (sector, size, arbitrage, distressed debt)
    • Absolute return focus
    • Long term horizon (10 years)
    • Main emphasis on long term holdings
    • Secondary emphasis on arbitrage, high yield, cash
  • Long Term Holdings
    • Cigar Butts & Good Businesses (Buffett/Munger)
      • Outstanding business economy?
      • Honest & capable management?
      • Attractive price?
      • “Great people, Great business, Great price”
  • Example Reckitt Benckiser Group Plc (LON:RB)
    United Kingdom

    • Non-Core holdings (Frank’s Hot Dogs & French’s Mustard) potential spinoff/sell
    • Hi ROE 30%+
    • Strong Balance Sheet $6B equity/$1.7B debt
    • Attractive Operating & Net Margins
    • Significant brand recognition
    • Growing revenues & earnings power over time (double digits)
    • Consistent FCF generation
    • Solid record since merger in 1999
      • Revenue $3B to $9B (10% CAGR)
      • Net Income $200M to $1.8B (20% CAGR)
  • Solid Brands – Five #1’s worldwide
  • Management
    • Rakeesh Kapoor new CEO after Bart Becht stepped down in the past year
    • Management required to own certain amount of shares (over £100M currently)
    • Incentives linked to tangible performance targets based on EPS growth
  •  Price – £31 March 2011
    • P/E 12.5x after adjustments for acquisition
    • Dividend yield 3.7%
    • Substantial Food & Pharma Businesses that were non-core
    • Buy opportunity – down 16% in 3 months

 

  • Risks
    • Raw material cost increase
    • Retailer consolidation
    • Private label products (steady at 20% of category)
    • Margin expansion (continue?) – believe room in emerging markets
    • Ability to scale globally
    • Generic competition in Pharma business

 

  • Q&A
    • Risk with Canada & currencies?
      • Yes, Canada dollar high & has hurt for 5 years
  • R&D component?
    • More in system innovations than in new product development
  • Evaluating attractive vs. unattractive: tipping point?
    • Estimate fair value & look for more appealing options
    • Not exact – part art

 

Value Investor Conference: Omaha, Nebraska – May 4rd, 2012

Dustin Hunter, SunRift Capital Partners (www.sunriftcp.com)

 (These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.)