Wednesday, 12 February 2014

Dull hopes for 2014 by Heineken and Reckitt Benckiser

Following my analysis of P&G's FX-related update overnight (see link here), what did two big European consumer names tell the market today?

Heineken shares have risen off the 1 year plus lows in the last few days as shown below.


Two excerpts from the results struck me as particular interesting.  First, as the headline below notes, there was an improved performance trend during the second half of 2013.  Note though that this was just consistent with 1.5% growth in operating profit. 


And the language around the 2014 is suitably muted: 'gradual recovery...gradual and sustainable improvement in operating profit'. 

The shares trade on just under x12 EV/ebit using the FY13 numbers just released but offer only a 2% yield.  I am not that excited.

Turning to Reckitt Benckiser, the key presentation slide from the household products company was this one...with all numbers at constant exchange rates. 
Even anticipating some operational leverage, I would doubt if this would be more than 7% even at a constant FX basis.  On a reported level I would say this will be just a handful of per cent.  Reckitts shares have been range-bound over the last year.  With the exception of a very strong balance sheet with clear capability to undertake some deals, there is little for investors in my view to get excited about.  The balance sheet strength is one reason not to short the shares even at around x14 prospective EV/ebit FY14e. 

 
 
I will put a flag at the 4400p bottom of the recent technical range level. 
 
As a conclusion, dullness with full valuations at a number of the big consumer names continues.  

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