While the suggestion that certain shares can be held forever has a hyperbolic feel, theres no doubt that there exist a number of UK businesses that investors should feel comfortable owning over the long term.
Thanks to its strong portfolio of brands and ability to generate consistent profits, 55bn cap consumer good company Reckitt Benckiser (LSE: RB) would be one of my top picks.
A better, stronger company
Todays interim results revealedbroad-based growth across the majority of Reckitts brands.The company booked a 14% rise in revenue to just over 5bn in the six months to the end of June, although like-for-like revenue fell by 1%.Pre-tax profit came in at 1.02bn a 46% rise on the 697m generated over the same period in 2016.
The Slough-based firm reported making significant progress on transforming its portfolio, in line with CEO Rakesh Kapoors desire for Reckitt to become a more focused consumer health and hygiene business.The acquisition of Mead Johnson Nutrition completed last month and a full quarter earlier than expected appears to be integrating well.Going the other way was the sale of Reckitts food business to US business McCormick, the proceeds of which will be used to pay down debt.
But it wasnt all good news. While Reckitt expects a return to form over the remainder of 2017, the targeted 2% like-for-like growth in full-year net revenue was still labeled as challenging given tough market conditions. Despite stating that it was now a better, stronger company, the ongoing impact of recent operational issues (including the recent NotPetya cyber attack, collapse of sales in South Korea and problematic product launches), also continue to weigh on short term sentiment towards the business. The shares were down over 2% in early trading.
Right now, shares in Reckitt trade on 23 times forecast earnings for 2017. That may seem high but its pretty standard for companies of this type, such is the perceived security of their earnings. The business continues to generate stacks of cash and consistently high returns on the money it invests. While relatively low compared to the payouts offered by its FTSE 100 peers, Reckitts forecast 2.2% yield is also fully covered by profits and subject to regular hikes by its board (including todays 14% increase to the interim payout).
Despite its current problems, Reckitt remains a quality operator and one Id have no problem holding indefinitely.
Reassuringly expensive
Another company Id feel content to tuck away is alcoholic drinks makerDiageo (LSE: DGE). Like its FTSE 100 peer, the 58bn cap boasts high operating margins, strong free cashflow and an enviable portfolio of brands (including Guinness, Captain Morgan and Baileys).
Like Reckitt, Diageo has also been on the acquisition trail of late, snapping up USsuper-premium tequila brand Casamigos for $1bn. With the latter delivering a compound annual growth rate of 54% over the last two years, its not surprising that Diageo wants a chance to introduce the multi-award winning label, part-owned by George Clooney, to an international audience. The acquisition is expected to complete in the second half of 2017 and begin contributing to profits in four years time.
Like Reckitt, Diageos shares will never be cheap in the traditional sense, trading as they do at 20 times forecast earnings for 2018. Nevertheless, for such a resilient company, I still think the shares are well worth snapping up.
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