RKT.L — Deck
Reckitt Benckiser sells household hygiene brands (Dettol, Lysol) and OTC health products (Nurofen, Mucinex, Gaviscon) in over 60 countries, earning most of its profit from brand premium and consumer loyalty in daily-necessity categories.
Haleon-quality margins at half the Haleon multiple — the gap is one unquantified liability
- The discount. Reckitt's adj EBITDA margin of 23.3% is nearly identical to Haleon's 22.5% — both defensive OTC hygiene/health franchises listed in London — yet Reckitt trades at 7.4× EV/EBITDA versus Haleon's 13.5×. The 45% discount is not brand decay: Hygiene and Health grew LFL through every year of the IFCN crisis. Reckitt's own five-year average EV/EBITDA is 11.3×.
- The FCF anchor. Core Hygiene + Health generated £1.8–2.3bn in free cash flow every year from 2020–2024, through a pandemic, inflationary shock, and IFCN collapse. At 2,406p that is a 12% FCF yield with a 7.3% dividend covered 1.7× by cash — the highest payout in the FMCG peer group.
- The binary. The NEC MDL bellwether trial (MDL No. 3026, N.D. Ill.) opens July 6, 2026 with 775+ federal cases queued, a $60M prior verdict against Reckitt (March 2024), a $70M Abbott verdict in April 2026, and zero provision on the FY2024 balance sheet. Analyst exposure estimates range £1bn (RBC) to £5bn (Jefferies). A £2bn recognition event consumes one full year of FCF, pushes net debt/EBITDA to approximately 2.6×, and makes a dividend cut probable.
Five years of £2bn+ free cash flow — unchanged through every disruption
Revenue has been range-bound at £13–14.5bn since 2020 — IFCN declines erasing Hygiene/Health gains — but cash barely moved. Capex runs at 3.5% of revenue; operating cash flow tracked adj net income at 107% across 2020–2024 with no working-capital anomalies. The FY2024 GAAP net loss of £1.1bn is entirely the £3.8bn non-cash IFCN goodwill write-down: the cash engine was unaffected. The floor holds over the next 12 months if NEC cash settlements stay below £500M and Core Reckitt LFL sustains above 3%.
The most expensive UK consumer goods deal ever — and the three-year cleanup
The damage. In 2017 Reckitt paid $16.6bn for Mead Johnson Nutrition at 27× EBITDA, framing infant formula as a 'defensible, high-growth category.' US share losses to Abbott began almost immediately; birth rates declined; the China IFCN operation was sold in 2021. Management held the IFCN narrative as 'core' for six years after the economics had broken. By FY2023–2024, cumulative goodwill impairments totalled £6.3bn.
The pivot. CEO Kris Licht (appointed October 2023) designated IFCN 'non-core,' took the impairments, and sold Essential Home (Harpic, Air Wick, Finish, Vanish) to ECP for $4.8bn on December 31, 2025. A £1.6bn special dividend was paid to shareholders in February 2026. IFCN US (Enfamil) is under active sale process — but LinkedIn showed an active 'Global Talent Director, Mead Johnson Nutrition' posting in April 2026, signalling a deal has not yet closed.
Today. Core Reckitt delivered +5.2% LFL in FY2025, beating management's own 2–4% guidance, led by emerging-market LFL of +14.6% (China Dettol double-digit; Durex +16.6%). Q1 2026 immediately decelerated to +1.3% on weak cold/flu season and European softness. The structural question: was FY2025 the start of a sustained 4–5% LFL recovery, or a seasonal catch-up now reverting?
Lean cautious — the income case rests on a litigation outcome management has refused to quantify for three years
- For. The cash is verified: OCF tracked adj net income at 107% over five years; FCF/adj net income averaged 85%; no working-capital games. FY2025 Core LFL of +5.2% — above management guidance — proves the brand moat is intact. A confirmed IFCN US sale with explicit NEC indemnity transfer would simultaneously remove the balance-sheet bomb, de-lever toward 1.0× net debt/EBITDA, and catalyse a re-rating from 7.4× toward 11–13× EV/EBITDA.
- For. Portfolio cleanup is executing: Essential Home closed December 2025, IFCN China sold 2021, £2.3bn returned to shareholders in FY2025. The 7.3% dividend yield is covered 1.7× by FCF and sits at the highest level in the FMCG peer group — a real income case if the litigation tail is bounded.
- Against. The MDL trial on July 6, 2026 carries zero provision against an analyst-estimated £1–5bn exposure. The April 2026 $70M Chicago verdict confirms jury hostility continues into 2026. A £2bn cash settlement pushes net debt/EBITDA to approximately 2.6×, breaches management's own 2.0× ceiling, and makes the current 7.3% yield arithmetically unsustainable. Net debt has already risen from £5.3bn to £5.9bn despite five years of £2bn+ FCF.
- Against. Management track record is mixed: FY2024 group LFL landed at −0.5% against 2–4% guidance; adj EBITDA margin came in at 23.3% against the implied ~26%. Q1 2026 has already slipped to +1.3%. IFCN US remains unsold after years of 'strategic review.' The CEO has made no open-market share purchase since his appointment in October 2023.
Watchlist to re-rate: July 6, 2026 NEC MDL bellwether verdict and Reckitt's H1 2026 response (July 29 results — the report that would be required to carry a provision); IFCN US disposal announcement with explicit NEC indemnity terms; Core Reckitt LFL in Q2–Q3 2026 — sustained above 3% validates the re-rating thesis, a second miss below 2% confirms the structural growth ceiling.