Questor share tip in depth: time to sell Reckitt Benckiser - Telegraph.co.uk

Mr Becht became chief executive as a result of 1999's merger of Britain's Reckitt & Colman with Benckiser of the Netherlands. Growth was boosted by the £1.9bn acquisition of Boots' over-the-counter medicines wing in 2006 and the 2010 £2.5bn purchase of Durex and Scholl footwear group SSL International.

When Mr Becht announced his departure in April 2011, shares in the company plunged 7.5pc. The maker of Dettol and Cillit Bang said Mr Becht would be replaced by Reckitt veteran Rakesh Kapoor, who was then executive vice-president of global category development. "After 16 years in the role, I believe now is the right time to retire," Mr Becht said.

FOCUS ON 'POWERBRANDS' DELIVERED GROWTH

Nineteen "powerbrands" in Reckitt's stable are the main drivers of growth. These include household names such as Airwick, Strepsils, Calgon, Clearasil, E45 and Finish.

Reckitt invested heavily in the marketing of these brands and focused on sectors where high growth was possible. For example, instead of investing in generic soaps and cleansers, Reckitt specialises in the faster growing "young skin-care" category with Clearasil. As a result, 16 of the powerbrands are number 1 or 2 in their category globally.

Reckitt also focused on developing innovative new products in its brands. On average, 30pc of revenue comes from innovations launched in the past three years.

All of this resulted in the company consistently outperforming the industry peer group for most of the past decade. For example, Unilever shares are up just 105pc since 2000 compared with Reckitt's 543pc.

NEW STRATEGY INVOLVES EMERGING MARKET PUSH

Last week, Mr Kapoor unveiled Reckitt's "new strategy for continued outperformance" along with a new vision and purpose.

"Our vision is a world where people are healthier and live better. Our purpose is to make a difference by giving people innovative solutions for healthier lives and happier homes," it said.

So how will this be achieved?

The plan is to shift the proportion of total sales generated in emerging markets from 42pc to 50pc over the next five years. Currently, most revenues come from the slow-growing and highly-competitive North American and European markets. Reckitt also plans to extract cost savings to reinvest in brand building.

This will involved a focus of 16 "power countries" which have yet to be clarified.

Reckitt still targets top-line growth ahead of the market and steadily expanding margins. However, before the shares are more highly-rated on the market, evidence of delivery is required.

WILL THE NEW STRATEGY DELIVER?

There is no doubt that the strategy is right.

The next billion consumers will be found in emerging economies where the middle class is growing fast. However, the move is slightly behind the curve.

This focus on emerging markets has been Unilever's strategy for a number of years. Spirits group Diageo has also deployed a similar plan.

Growth looks likely to be pedestrian but the company remains a cash-generating machine.

This week's gains have closed the earnings multiple gap with Unilever. Reckitt shares are trading on a prospective 2012 multiple of 14.5 and Unilever is on 14.9.

Although Reckitt's management is top-notch, Unilever is further down the line with its move into these markets.

There are also questions over how popular brands such as Airwick and Clearasil will be in fledgling economies. Questor now prefers Unilever and investors should use gains in the past week to sell Reckitt shares.