Reckitt Benckiser (RKT.L): Model Update

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Reckitt Benckiser (RKT.L): Model Update

aleon’s mid-to-long term earnings

algo, pace of deleveraging, and category exposure.

Risks

Haleon screens as High Risk in our quantitative model, but this is driven by its short trading history since listing. We do not

believe a High Risk rating is supported by the structural defensiveness of the Consumer Health category, its visibility, secular

growth drivers, barriers to entry and high FCF generation, and so a High Risk rating has not been applied.

Downside risks to our recommendation and our target price being achieved include: 1) revenue and margin risk from VMS

commoditization; 2) regulatory or litigation risk; 3) structural changes to consumer behaviours caused by Covid impacting pace

of deleveraging; 4) market share shifts to private labels during a recession; and 5) inflation and currency risks.

Henkel

Valuation

Our 12-month target price is EUR75. This is based on a SoP by division, applying the FY1 EV/EBITDA of closest peers and

transaction multiples history for each segment:

– Consumer brands valued on c7.8x FY1 EBITDA

– Adhesives valued on c9.0x EBITDA

The risks to achieving our target price include:

1. Macro risk – Given its exposure to Industrial Adhesives, Henkel’s sensitivity to improving or deteriorating macroeconomic

conditions is significant.

2. Competition – Henkel remains vulnerable to any step-up in brand support or price/promo investments by bigger HPCs.

3. M&A execution risk – The company has already bought several adhesives or home care assets, and although it has a good

track record in integrating M&A, potential future large deals may carry risk.

4. Currencies – The fluctuating performances of the euro against the US dollar and many EM currencies pose both upside and

downside risks.