July 29, 2008

Scrutineer: Bare Necessities Aid Reckitt

By Martin Flanagan


2,604p +68p


519.5p +2p

DETERGENTS, air-fresheners and over-the-counter painkillers are not the most glamorous of product lines. But the gritty resilience of life's necessities is standing Reckitt Benckiser, the world's largest household cleaning goods manufacturer, in good stead.

Reckitt's shares have outperformed the FTSE 100 index by 5 per cent so far this year - about half that outperformance coming yesterday as the company had a few pieces of good news for investors.

Firstly, there was an 11 per cent jump in Q2 profit. More importantly, Reckitt was upbeat on second-half prospects, saying it felt it could offset commodity price rises with consumer price rises and cost cuts.

And there is good news on the divi. The half-year payout is lifted 28 per cent to 32p, and the company says it is planning to lift its dividend payout to the top end of its peer group, or to about 50 per cent of group earnings.

Such divi ambitions are a clear gesture of faith by management in Reckitt's cash-generative capabilities amid both clear skies and low- lying cloud.

Yesterday's fillip for the share price will be welcome. The stock had been doing well up until June.

But since then it - and the sector - have been under a cloud on concerns over raw material costs, own-label gains threatening the big boys, and the threat of customers trading down.

But Reckitt's statement yesterday puts the household product sector's problems into perspective.

The industry deals in mundane basics of hygiene and practical cleanliness on which even a cash-strapped public likes brand- friendly reassurance.

Reckitt, and the sector, has strong defensive stock market characteristics in this sense.

BY THE end of this year, the Competition Commission is set to publish its findings on whether airports authority BAA is operating an effective monopoly in Scotland and the south of England.

In Scotland, the company - owned since last year by Ferrovial of Spain - has Edinburgh, Glasgow and Aberdeen airports. Down south it has Heathrow, Gatwick and Stansted.

In the current depressed climate for airlines - witness Ryanair's price war announced yesterday against British Airways and rival budget airlines - the pressure for BAA to be broken up is likely to be stronger than ever.

It has been a recurrent theme from some airlines and consumer groups ever since the old British Airports Authority was privatised in 1987, the same year as BA.

Equally, although nobody admits it publicly, the fact that Britain's premier airports operator is now owned by the Spanish has put the Competition Commission's deliberations under much greater scrutiny than ever before.

Few thought BAA was a class act even before the Spanish takeover. Even fewer think things have improved under Ferrovial.

The fiasco surrounding the opening of Heathrow's Terminal 5 earlier this year has also given the Commission's investigation some added spice. Looked at through the other end of the telescope, however, if BAA does get away without selling assets this time despite all the extra attention and negative publicity, it will probably keep the rights to all its current operations until the crack of doom.

SPARE a thought for Tony Hayward, BP's boss, this morning.

He will have to keep a straight face at a packed London press conference when questions will rain in on the oil giant's chief executive regarding how tenable is its joint venture in Russia.

TNK-BP is being subjected to grotesquely heavy-handed political and investor pressure in "bad muther" Russia.

Such is the deterioration of relations between BP and its plutocrat Russian partners that the joint venture's chief executive Robert Dudley last week decided to leave Russia temporarily due to "sustained harassment".

We have all heard of hands-off management, but management by remote control from outside the country surely takes us into new territory, even by the Byzantine ways of Big Oil.

Hayward will seek to focus attention on what the City expects to be a near-40 per cent rise in BP's underlying second-quarter profits to about dollars 7.6bn, compared with dollars 5.5bn a year ago.

He will have his work cut out. Russia is a major brickwork in BP's overarching strategy. This is no little local difficulty.

(c) 2008 Scotsman, The. Provided by ProQuest Information and Learning. All rights Reserved.