Broker tips: Reckitt Benckiser, Medica
Analysts at Berenberg lowered their target price on household and personal care products group Reckitt Benckiser from 9,100.0p to 8,385.0p on Thursday but stated the company's turnaround was still "well on track".
Berenberg noted that Reckitt Benckiser had ended the year "strongly", with like-for-like sales growth of 10.2% year-on-year in the fourth quarter, resulting in 11.8% like-for-like sales growth in 2020 as a whole.
At the group level, Berenberg said this result was in line with visible alpha consensus expectations. However, at the divisional level, the 25.7% acceleration in hygiene was "a positive surprise", while the 2.8% slowdown in health and the 3.5% drop in nutrition were both higher than expected, owing to an "unfavourable cough and cold season" and challenges in its Chinese infant formula business.
The German bank, which reiterated its 'buy' rating on the stock, pointed out that operating margins of 23.6% for 2020 were "a touch light" of consensus forecasts for a print of 23.8% but also noted that adjusted earnings per share of 327.0p were in line.
However, Berenberg said it remains "confident" that improved execution was underpinning "a structural improvement" in the company’s like-for-like sales growth profile and stated this was yet to be reflected in the stock's valuation.
Analysts at Liberum initiated coverage on teleradiology firm Medica on Thursday at 'buy', pointing to faster earnings per share growth, higher earnings quality and underestimated optionality.
Liberum said Medica's new management team had made "the right investments" to take advantage of surging end-market demand and "incredibly tight supply", a move that the analysts believe will allow it to deliver a 20% organic EPS compound annual growth rate to 2025.
Furthermore, Liberum expects Medica to use its strong balance sheet for EPS accretive mergers and acquisitions that will diversify the business into new services and geographies.
Liberum also acknowledged Medica's addition of new chief executive and chief financial officers over the last two years, highlighting the team's "ambitious plans" to optimise growth in the firm's core markets through recent investments that were now bearing fruit.