RBC Capital downgrades Reckitt, factors in Essential Home sale

(Sharecast News) - RBC Capital Markets downgraded Reckitt Benckiser on Wednesday to 'sector perform' from 'outperform' and cut the price target to 6,200p from 6,400p as it updated forecasts to factor in the Essential Home sale. "We don't know everything we would like to, but nonetheless are incorporating into our forecasts the disposal of Essential Home along with the anticipated special dividend (payable in late Feb) and share consolidation (which are designed to offset one-another)," the bank said.

"We derive a target price of £62 using an adjusted present value calculation. Consequently, we reduce our rating to sector perform from outperform."

RBC said its new forecasts for Reckitt "are not the finished article". It pointed out, for example, that Reckitt has not indicated what, if any, margin growth it expects in 2026 following the disposal of Essential Home and associated stranded costs. RBC assumes a 60 basis points EBIT margin decline for Core Reckitt.

"Meanwhile, neither the share consolidation (24:25 to take effect from 2 February) and £1.6bn special dividend (payable on 20 February, or 27 February for ADR holders) has yet happened," it said.

"Nonetheless, given our view of the overwhelming likelihood that they will, we update our forecasts accordingly."

As far as the NEC baby formula litigation is concerned, RBC said it continues to assume an £2bn all-in global settlement, which it believes is close to buy-side expectations based on its conversation with investors.

"The outcome of the first multidistrict litigation (MDL) bellwether case against Mead Johnson, scheduled in February, should allow us to assess its negotiating position better," the bank said.

At 1135 GMT, the shares were down 0.5% at 6,160p.