Reckitt: We Are Encouraged by CEO Appointment and Clearer Full-Year Guidance

Wide-moat Reckitt reported first-quarter 2023 net revenue growth of 8%, significantly ahead of company-compiled consensus of 3.6%, driven predominantly by stronger-than-expected performance in the nutrition and health segments. In light of this, management clarified and increased full-year top-line guidance of 3%-5% like-for-like net revenue growth for the group (it was previously targeting mid-single-digit net revenue growth, before a negative 2.5% hit from the normalization of U.S. nutrition sales, which in aggregate we regarded as lower for the group). The company also announced on April 26 the appointment of a new CEO, company insider Kris Licht, president of its health segment and chief customer officer. We believe this appointment is largely positive given Licht’s involvement in Reckitt's strategic review (he previously served as chief transformation officer). We expect to see a smooth transition and continuation of the current underlying growth trajectory. We raise our fair value estimate by 3% to GBX 6,900 to reflect the strong first-quarter delivery and higher full-year expectations (we now expect 3% like-for-like revenue growth from 1% previously, with margin expectations unchanged). The U.S. dollar share class fair value increases to $17.10 from $16.20. Even after this bump in fair value, shares trade in 3-star territory with limited upside remaining.