Health, hygiene and home products powerhouse RB (RB.), formerly Reckitt Benckiser, rises 3.5% to £52.45 on plans to demerge and separately list its pharmaceuticals business, RB Pharmaceuticals. The news accompanies half-year results from Slough-headquartered RB revealing better-than-expected operating profits and earnings per share.

Behind household and health brands ranging from Cillit Bang and Airwick to Dettol and Nurofen, RB is to demerge RB Pharmaceuticals. It provides opium addiction treatment,  Suboxone, that was put up for sale last year.

Web chart - Reckitt - July 2014

The pharmaceutical unit once accounted for a fifth of earnings, yet no longer fits into Reckitt's long-term plans to focus on consumer health. This commitment is demonstrated by RB's plans to invest £100 million in a new healthcare research and development facility in Hull.

Although the pharma business' sales and margins have been hit by the emergence of generic variants, RB reckons it can still deliver long term value as a stand-alone operation. CEO Rakesh Kapoor plans to list RB Pharmaceuticals separately on the London Stock Exchange in a move that will remove the cloud of uncertainty that has shrouded RB for some years.

'We expect this to take place over the next 12 months,' says Kapoor, explaining the move 'will also allow RB to focus on its core strategy to be a global leader in consumer health and hygiene.'

RBC Capital Markets analyst James Edwardes Jones believes the demerger means RB 'hasn't been able to attract a trade buyer on satisfactory terms', while Jefferies' Martin Deboo writes: 'this feels like an anti-climax to us relative to pre-event speculation (by Bloomberg and others) that RB was to announce more concrete plans.'

Despite these downbeat comments, investors like the look of RB's reassuring interims, which show its investment in the exciting consumer health market paying off and driving profitable progress. For the second quarter, the FTSE 100 firm achieved 4% organic growth (stripping out RB Pharmaceuticals), in line with consensus, helped by strong performances from Scholl, Durex and Gaviscon.

First-half operating profit of £1.08 billion was up 3% at constant currency and ahead of consensus, while earnings per share of 113.4p was better than the 109p consensus forecast, helped by a lower tax charge.

Issue Date: 28 Jul 2014