Market News and an update from Reckitt Benckiser.

Market News

The Fed’s Christopher Waller called for a quarter-point rate cut this month, saying the labour market is “on the edge” while upside risks to inflation are limited. Mary Daly added that two cuts this year remain a reasonable outlook and the Fed shouldn’t wait too long to move. The dollar dipped and Treasuries rose – the 10-year currently yields 4.45%. Gold edged up to $3,345 an ounce.

EU members agreed to new Russian sanctions including a lower oil price cap. Brent Crude has moved back up towards $70 a barrel.

US equities rose to new highs last night – S&P 500 (+0.5%); Nasdaq (+0.8%). Netflix topped Wall Street’s lofty estimates with second-quarter results that beat across every major metric. Union Pacific is in talks to buy Norfolk Southern, people familiar said.

In Asia this morning, markets were mixed: Nikkei 225 (-0.2%); Hang Seng (+1.1%); Shanghai Composite (+0.5%). Japan’s inflation eased to 3.3% in June, slightly below expectations but still well above the Bank of Japan’s target.

The FTSE 100 is currently little changed at 8,984, while Sterling trades at $1.3432 and €1.1560.

Congress passed the first US federal law regulating stablecoins, delivering a watershed moment for the crypto industry. Bitcoin pushed back above $120k.

Source: Bloomberg

Company News

Reckitt Benckiser has today announced an agreement to sell its non-core Essential Home business. The $4.8bn transaction is a key part of the group simplification strategy and represents a significant step forward in reshaping Reckitt. In what is a fairly complex transaction, Reckitt will retain 30% of the business. However, the initial response from the market has been fairly positive, with the shares up 2% in early trading.

Reckitt is a global leader in health, hygiene, and nutrition. Trusted brands, such as Dettol and Lysol, continue to benefit from the shift to healthier and more hygienic lifestyles, particularly in emerging markets. To help ease the pressure on state-funded healthcare systems, we are seeing a transition to self-care and growth of over the counter (OTC) brands such as Mucinex, Nurofen, and Gaviscon, all of which are owned by Reckitt. A focus on immunity, mental health, and overall well-being is expected to drive growth of the group’s preventative treatments, such as vitamins, minerals, and supplements (VMS).

Reckitt is currently sharpening its portfolio focus and simplifying its organisation to drive accelerated growth and value creation. A new operating model and structure went live on 1 January 2025.

·       Core Reckitt (71% of revenue) includes a portfolio of 11 market-leading (No.1 or No.2), high margin Powerbrands across four categories of self-care, germ protection, household care, and intimate wellness. Brands include Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex, and Veet. Over the last three years this portfolio has delivered a 5% net revenue CAGR and in 2024 generated a gross margin above 60%.

·       Essential Home (14% of revenue) includes a portfolio of non-core global brands Air Wick, Calgon, Woolite, Cillit Bang, Resolve, Sole, and Easy-Off, as well as around 75 other brands across over 70 markets.

·       Mead Johnson Nutrition (15% of revenue). The company is ‘evaluating opportunities’ for the business which includes infant formula brands Enfamil and Nutramigen.

This morning, the company has announced it has entered into an agreement with Advent International, a leading global private equity investor, to divest its Essential Home business. The details are as follows:

·       The transaction, which is expected to complete by the end of 2025, values Essential Home at Enterprise Value (EV) of up to $4.8bn, or 7.7x unaudited adjusted operating profit for the 12 months ending 31 March 2025.

·       The EV includes up to $1.3bn of contingent and deferred consideration, consisting of up to $0.4bn contingent on the operating performance of Essential Home in 2025, $0.3bn of vendor financing arrangements provided by Reckitt to Advent, and up to $0.6bn contingent on certain return thresholds being achieved.

·       Reckitt will retain an interest in Essential Home through a 30% equity stake in Advent’s acquisition vehicle providing a potential long-term value enhancement opportunity for Reckitt. Reckitt will have board representation while it holds a significant minority stake and there will be minority consent rights and rights relating to an exit.

·       Reckitt expects to incur cash tax, transaction, and other one-off costs predominantly relating to the separation of Essential Home of $0.8bn, with the majority payable in 2026.

·       Excess capital will be returned to shareholders, with around $2.2bn expected to be paid out as a special dividend with a share consolidation following completion. The special dividend will be in addition to Reckitt’s ongoing share buyback programme, with Reckitt intending to announce its next buyback tranche with its half-year results next week.

·       In line with Reckitt’s communication to date, the company intends to mitigate the stranded costs from the separation of Essential Home and remains on track to unlock previously communicated cost efficiencies, delivering at least a 300bps reduction in fixed costs and exiting 2027 with a fixed-cost base of 19% of net revenue.

While the transaction is in line with the group’s strategy and represents a significant step forward in reshaping Reckitt, we would have liked to have seen a ‘cleaner’ transaction. We expect the company to provide a more detailed explanation at the time of its results on 24 July.

Source: Bloomberg