Jeff Stacey is Bullish on Reckitt Benckiser Group Plc

Jeff Stacey, CFA, is the Founder and Portfolio Manager for Stacey Muirhead.

• Investment Process
  • Global Reach
  • Independent research (stock pickers)
  • Concentrated (10-20 positions)
  • Unconstrained (sector, size, arbitrage, distressed debt)
  • Absolute return focus
  • Long term horizon (10 years)
  • Main emphasis on long term holdings
  • Secondary emphasis on arbitrage, high yield, cash

• Long Term Holdings
  • Cigar Butts & Good Businesses (Buffett/Munger)
    • Outstanding business economy?
    • Honest & capable management?
    • Attractive price?
    • “Great people, Great business, Great price”

• Example Reckitt Benckiser Group Plc (LON:RB)
  United Kingdom
  • Non-Core holdings (Frank’s Hot Dogs & French’s Mustard) potential spinoff/sell
  • Hi ROE 30%+
  • Strong Balance Sheet $6B equity/$1.7B debt
  • Attractive Operating & Net Margins
  • Significant brand recognition
  • Growing revenues & earnings power over time (double digits)
  • Consistent FCF generation
  • Solid record since merger in 1999
    • Revenue $3B to $9B (10% CAGR)
    • Net Income $200M to $1.8B (20% CAGR)
• Solid Brands – Five #1’s worldwide
• Management
  • Rakeesh Kapoor new CEO after Bart Becht stepped down in the past year
  • Management required to own certain amount of shares (over £100M currently)
  • Incentives linked to tangible performance targets based on EPS growth
•  Price – £31 March 2011
  • P/E 12.5x after adjustments for acquisition
  • Dividend yield 3.7%
  • Substantial Food & Pharma Businesses that were non-core
  • Buy opportunity – down 16% in 3 months

• Risks
  • Raw material cost increase
  • Retailer consolidation
  • Private label products (steady at 20% of category)
  • Margin expansion (continue?) – believe room in emerging markets
  • Ability to scale globally
  • Generic competition in Pharma business

• Q&A
  • Risk with Canada & currencies?
    • Yes, Canada dollar high & has hurt for 5 years
• R&D component?
  • More in system innovations than in new product development
• Evaluating attractive vs. unattractive: tipping point?
  • Estimate fair value & look for more appealing options
  • Not exact – part art

Value Investor Conference: Omaha, Nebraska – May 4rd, 2012

Dustin Hunter, SunRift Capital Partners (www.sunriftcp.com)

 (These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.)