Hargreaves Lansdown reckons that Reckitt Benckiser’s (LON:RB) bigger-than-expected settlement with US regulators over the marketing of Indivior’s opioid addiction treatment will be a drag on cashflow, Citywire reports. The comments came after the consumer goods group disclosed yesterday that it had reached a $1.4-billion settlement with the US over its former unit which has been accused of engaging in an illicit nationwide scheme to increase prescriptions of Suboxone Film, used in the treatment of opioid addiction.
Reckitt Benckiser’s share price surged in the previous session as investors welcomed the settlement, adding 2.52 percent to close at 6,590.00p, outperforming the benchmark FTSE 100 index which ended trading 0.28 percent lower at 7,509.82 points. This morning, the shares have fallen into the red, having given up 0.59 percent to 6,551.00p as of 08:16 BST, as compared with about a 0.1-percent gain in the Footsie.
Drag on cash flow
Citywire quoted Hargreaves Lansdown analyst George Salmon as commenting that Reckitt Benckiser’s settlement with the US would “be a meaningful drag on cashflow at a time when the group is looking to shift the debt taken on to fund its $18 billion acquisition of Mead Johnson in 2017”. Reckitt had previously set aside $400 million to cover the costs and noted yesterday that it would increase the provision to $1.5 billion at its half-year results.
The analyst, however, added that the “cash generative business model should mean it can still reduce that debt pile and increase the dividend in the years ahead despite the cost of this settlement”.
Other analysts on RB
Deutsche Bank reaffirmed the company as a ‘buy’ today, without specifying a target on the Reckitt Benckiser share price, while Goldman Sachs, which rates the company as a ‘neutral,’ set a valuation on the shares of 7,200p yesterday. According to MarketBeat, the blue-chip group currently has a consensus ‘hold’ rating and an average price target of 7,211.11p.