Ariel Investments, LLC — Ariel Global Composite on Reckitt Benckiser Group plc
Thesis
Ariel reestablished Reckitt, seeing an undue valuation discount to comparable consumer-staples franchises. Nearly half of core revenue comes from faster-growing emerging markets, where growth remains healthy. A weak cold and flu season and stranded costs have obscured improvements in margins, while an encouraging initial infant-formula trial reduced litigation concerns. Ariel expects the combination of emerging-market growth and operating improvement to support earnings above the market's expectations.
“the shares trade at an unwarranted discount to their consumer staples peers”
Key risks
- Ongoing infant-formula litigation remains an uncertainty despite a favorable first trial.
- A weak cold and flu season has weighed on recent business performance.
- Stranded costs from portfolio restructuring could continue to pressure earnings.