"Rentokil (LSE:RTO)LSE:RTO:Rentokil was one of our proposals for an ISA candidate in February. It's due a bit of an update as, similar to LSE:BAG:AG Barr (a solid 15% rise), the share price has now met and exceeded our target levels. In fact, it ..."
" RENTOKIL (LSE:RTO) Rentokil was one of our proposals for an ISA candidate in February. It's due a bit of an update as, similar to AG Barr (a solid 15% rise), the share price has now met and exceeded our target levels. In fact, it doubled ..."
Read this article on LinkedIn. Was already planning to buy and this tipped the balance...
10 September 2017
An aggressive acquisitions strategy has fueled the UK firms rapid expansion in North America, but deep pockets arent the only reason this global brand has become a force to be reckoned with in the U.S. and Canada.
By Dan Moreland
Editors Note: In the second of our three-part series on the mergers and acquisitions market, PCT magazine examines how Rentokil Initial has altered the competitive landscape of the North American pest control market.
Since implementing an aggressive acquisitions strategy under the leadership of President and CEO John Myers, Rentokil North America has become a force to be reckoned with in the U.S. and Canada, rising to #3 on PCTs Top 100 List with more than $600 million in annual sales.
In March of 2006, following its high-profile acquisition of J.C. Ehrlich the largest family-owned pest control business in the U.S. at the time PCT published a cover story titled, The British Are Coming. The article chronicled the global pest control giants desire to become a major player in North America, the most lucrative pest control market in the world, leveraging J.C. Ehrlichs stellar business reputation and deep market relationships as a platform company to achieve its long-term goals.
Since that time, Rentokil Initial unlike other companies expressing similar aspirations before them (think Waste Management) has delivered on its strategic vision, embarking on an impressive buying spree that remains unabated to this day. In fact, the companys list of high-profile acquisitions reads like the Whos Who of the pest management industry, with such well-known names as Western Exterminator, Presto-X, Buffalo Exterminating, Eradico Pest Services, Anderson Pest Solutions, Isotech Pest Management, A-Active Termite & Pest Control, Watch-All Pest Control, and the Oliver Exterminating Group now under the Rentokil Steritech corporate umbrella.
And the companys purchase of The Steritech Group in 2015 dramatically expanded the companys commercial market footprint, providing access to the highly competitive auditing and brand protection business.
But if you think Rentokil Steritechs success is only a result of its parent companys deep pockets, youd be wrong. Its success in North America, which is mirrored by its success in the 70 markets it serves around the globe, is a result of a strategic vision that includes: (1) technical expertise shared across all its markets; (2) digital leadership and web expertise designed to provide an enhanced customer experience; and (3) growth through mergers and acquisitions.
As evidence of its commitment to leverage technology to enhance its customers experience, the companys Annual Report states: We now have digital expertise at every stage of the customer journey from web searching through to e-billing. In addition, over the last three years we have been developing, testing, and deploying our range of remote monitoring sensors and connected devices.
PestConnect, the companys remote monitoring system for rodents, is now used in more than 1,200 accounts across 12 countries and has delivered more than three million individual messages relating to the presence of rodent activity and service productivity. Further, the companys myRentokil online customer portal has been deployed in 20 countries with more than 60,000 customers registered.
On the M&A front, since 2016 the company has acquired 54 pest control companies around the globe, including 22 in North America. Just this past year, Allgood Pest Solutions, Heron Home & Outdoor, Connors Termite & Pest Control, Fischer Environmental Services, and Batzner Pest Management joined the fold. As evidence of just how important North America has become to Rentokil Initial, its North American business now accounts for more than 30 percent of the overall revenue of R
"Best Higher Risk Mixed Asset FundOrbis Global Balanced Standard1-year return: 32%; 3-year return: 53.6%Our awards require winning funds to have a minimum track record of three years, and the FUND:JYIH:Orbis Global Balanced Standard fund has taken ..."
"RENTOKIL (LSE:RTO)Our ISA candidate commentary continues and we're looking at LSE:RTO:Rentokil. Needless to say, the inspiration (yet again for RTO) came from a mouse. A habit of leaving the office outside door ajar to stop the dogs playing the ..."
" RENTOKIL (LSE:RTO) Our ISA candidate commentary continues and we're looking at Rentokil. Needless to say, the inspiration (yet again for RTO) came from a mouse. A habit of leaving the office outside door ajar to stop the dogs playing the "can ..."
I have been puzzled by the recent fall in the sp since there is no obvious reason. A possible explanation is to-days news of the large selling by Schroders. Now that is out of the way, the sp may recover, provided, of course, Schroders do not sell off the rest of their holding. Shares still look very attractive to me.
Ever since the new management was installed, Rentokil has progressed and looked an increasingly attractive investment. Its expansion in the US, especially in the bug ridden states like Florida will do nothing but good. I have slowly increased my holding and plan to add further A firm buy imho
In times of cheap money and slow GDP growth, companies look to drive earnings through mergers and acquisitions (M&A). It's nothing new, the strategy can enhance shareholder value and justify the premium valuations some companies can subsequently surge to. Barclays has trawled through its coverage and picked four companies which could unlock real earnings power.
Highlighting the attractiveness of clear M&A strategies, strong management teams with good track records and the importance of end markets with scope for further consolidation, the investment bank picks Bunzl (BNZL), DCC (DCC), Diploma (DPLM) and Rentokil (RTO).
Support services firms have already performed well this year and trade in the top-end of their sector, so potential for a significant surge in value is limited.
"Further share price upside more likely to come from earnings growth," says analyst Jane Sparrow. "In the case of Rentokil, we see a stronger argument for further multiple expansion as pest control continues to become a larger part of the business and European workwear reduces."
Here's why the four shares are well-positioned to benefit.
If Bunzl, an £8 billion distribution firm, maintains its £300 million average acquisition spend from 2012-2015, Barclays reckons earnings could grow by 8% at a compound annual growth rate.
Still, this could already be priced into the group's premium price/earnings (PE) valuation of 24 times, so Barclays holds on to its 'equal weight' rating. Changing hands for 2,411p, Barclays upgrades its share price target by 23% to 2,450p.
DCC has the most to gain from a successful M&A strategy, especially as oil majors flog assets, with financing already in place and a record of successful integrations behind it. The fuel distributor could underpin a double-digit earnings per share compound annual growth rate (CAGR) if it continues its average annual £110 million spend from 2018-2015.
"Given the step-up in the scale of acquisitions in the last two years, we would be surprised if the actual acquisition outlay wasnt higher than the historical average," says Barclays.
Upgrading its target price by 47% to 7,800p, Barclays has pushed its rating to 'overweight'. At 6,990p, the shares have 12% upside and trade on 24 times forward earnings.
With a record of delivering both organic and acquisitive growth that would turn most companies a healthy shade of green, Diploma's targeted annual £25 million spend could accelerate earnings growth by 3-4% each year for the next five.
The supplier of medical devices and electronic components' 'overweight' rating has been downgraded to 'equal weight', however, with limited share price upside, headwinds in each of its three sectors and lumpy conversion of its acquisition pipeline. Still, this is more than likely reflected in the 830p share price.
There's not much room for any killer acquisitions on the balance sheet, but there's certainly potential for the pest control giant to enhance organic growth with attractive bolt-ons. If management side-lines £80 million a year for this them, they could add 3% to annual earnings. Barclays reckons the shares are worth 238p, implying 9% upside."
"Credit Suisse raised its target on Rentokil to 235p from 225p on Tuesday and reiterated an 'outperform' rating for the pest control business.
The Swiss bank lifted its earnings per share estimates on Rentokil for fiscal years 2016-2018 by 3-5%, reflecting foreign exchange benefits, a lower tax rate and lower interest charge.
"We think that a stable set of core businesses (notably Pest Control and Hygiene) and strong cash generation will allow it to continue to reinvest excess cash into M&A, particularly in the Pest Control division," said Credit Suisse.
Pest Control now accounts for over 50% of revenues, including the recent acquisition on Residex.
Credit Suisse also believes Rentokil could take market share in the North American market as it benefits from its scale and brand relative to the numerous smaller operators and deepens its penetration within the National Accounts market.
"As market share grows we expect the underlying business to continue to grow margins."
"Things were still looking up for Rentokil despite the strong run which the shares had enjoyed year-to-date, which had seen them outperform the Footsie by 23%, analysts at RBC said.
Following recent movements in foreign exchange markets and acquistions by the company the broker bumped up its estimates for the company´s earning per share in 2016 and 2017 by 3.0% and 6.0%, respectively.
The rate of growth in organic revenues would be slightly lower over the three months to June than the 6.4% clip reported for the first quarter, analysts Andrew Brooke said in a research report published on 11 June.
Nevertheless, Brooke expected the other main trends at the pest control specialist to be unchanged.
He also expected confirmation that the synergies arising from the purchase of Steritech were on track.
Brooke highlighted five aspects of the company: Its potential for organic growth, signicant potential to continue growing its margins, improving mix, possible corporate actions and the firm´s sensible strategy.
More specifically, the analyst saw potential for Rentokill to improve its margins by more than 300 basis points over the next five years.
The same analyst also believed that there remained "significant scope" for mergers and acquisitions, "which should help drive customer density. In addition, we would not rule out a sale of Workwear at some point."
"LSE:RTO:Rentokil was one of the stockmarket's glamour stocks during the 1990s. Not bad for the pest control firm dubbed the "royal rat-catcher". It all went wrong following the hostile takeover of a larger rival and boss Sir Clive Thompson's ..."
"Bank of America Merrill Lynch raised its price target on Rentokil to 175p from 150p as it maintained its 'buy' rating on the stock. "We think Rentokil could look like a very different business in 3-5 years' time," the bank said.
It sees potential for the company to materially refine and improve its business model through organic growth, exiting certain operations and investing the proceeds to build out in others.
It said that if executed well, this transformation strategy could create substantial value for shareholders, from both higher earnings and a higher multiple. "Our analysis suggests that paring down the portfolio and reinvesting in the higher-quality pest control operations could yield between 20% and 40% upside to the current share price over time," it said."
"The Questor Column:
Rat-catcher Rentokil has much to offer:
Questor was pretty much reading the company its last rites in 2008, warning that this could well be the last time we look at Rentokil... Not the company itself, you understand, but the name. After four profits warnings in just eight months, the brand is now so tainted, the new management team led by Andy Brown could be forgiven for ditching it in favour of something new. What raised eyebrows at the time was the pay deal the three negotiated. Each was awarded 7.5 million shares, with various amounts vesting if the share price hit certain targets and a further 3.75 million shares up for grabs if the share price hit 180p to 280p. When they arrived, the shares were at 85p and the incentive plan had the potential to pay out more than £30 million each. Mr Brown called it a day in October 2013, having six months earlier sold City Link to Jon Moultons Better Capital for just £1 and booked a £40 million loss on the deal. Mr Ransom took over and built on the work his predecessor had started.
Although pest control makes up 40% of its near-£1.8 billion annual revenues, Renotkil also has two other main business lines. Providing and laundering workwear and protective equipment represents about a quarter of sales, and about the same proportion comes from its hygiene business, which can keep office toilets tidy or even mop up the mess at murder scenes.
The shares have enjoyed a good run recently but trading at 16.5 times price-earnings this year, falling to 15.5 next, dont look overpriced. The yield of around 2% isnt great but this is more of a growth play.
Attractive growth opportunities at pest control business
Thursday 15 January 2015
Glamorous business models are often confused with spectacular economics, and vice versa.
Pest control, hygiene and workwear may not sound like the classiest of industries, but they have served Rentokil Initial (RTO) well for the best part of a century - and its shareholders for almost as long.
Now looks like an opportunity to pick up shares in a high quality, market-leading business at a reasonable price and at a time when it is poised to pursue new avenues for growth.
Rentokil was a darling of the stock market in the 1980s and 1990s, when its market capitalisation topped £14 billion. Dubbed a 'permanent growth stock', it was a core holding in the portfolio of legendary investor Ian Rushbrook at Personal Assets Trusts (PNL) and one he held right through to his death in 2008.
City fund manager favourite Neil Woodford was also a fan while at Invesco Perpetual though does not appear to have added it to his new fund at CF Woodford.
Certainly, the easy money in Rentokil looks like it has been made. The stock traded lower than 50p in the 2008 financial collapse and could even have been bought for little over 60p in late 2011, when Woodford was hoovering up stock.
But the successful execution of Rentokil's turnaround plan, as well as a number of developments this year, still make the stock look attractive over a reasonable time frame, in our view.
First, it has offloaded underperforming and non-core assets. Its facilities management business was sold to fellow outsourcer Interserve (IRV) in March 2014 for around £250 million. Rentokil also shipped out its problem logistics business City Link to Jon Moulton's Better Capital (BC12) investment vehicle for £1. It was subsequently, and acrimoniously, placed into administration, losing money at a rate of £500,000 a week.
Second, it has re-invested funds into areas which should eke out better returns in the future: its Rentokil pest control business and the Initial Hygiene and Workwear offerings.
Last week, it bought three more pest control businesses, taking the number of deals in the past 12 months to 30. Twenty three of these have been small pest control 'bolt-ons'. Chief executive officer Andy Ransom reckons the business can generate returns on capital of 15% or more by investing in these three core product areas. The strategy, largely, is to bulk out operations already up and running in countries across the world.
Rentokil is a 'top pick' at RBC Capital Markets, which has a 'buy' rating and 150p price target on the stock. Analyst Andrew Brooke says the investment thesis is based around a more focused business, improving cash generation and better allocation of capital.
'Management has disposed of underperforming businesses like City Link and the facilities management business and the one-off restructuring costs look like they will start to drop out,' he explains.
'The cost benefits have come through as a result of the restructuring and some of the incremental capital expenditure in information technology and the re-jig of the fabrics business in Europe.'
'Now they are in a position to allocate capital into higher growth areas of their business.'
A key risk, highlighted in Rentokil's annual report, is failure to maintain existing contracts or win new business. A 1% decline in revenue, leads to around a £8-£12 million decline in operating profit.
Rentokil has a good track record and targets high single digit profit growth.
The business has been around since the 1930s and operates in stable markets.
A market leading business with a well regarded management team.
Market value: £1.21 billion
Prospective PE Dec 2014: 15.3
Prospective PE Dec 2015: 14.3
Prospective dividend yield: 2.1%
Bid/offer spread: 0.2%
"City Links former owner Rentokil Initial could receive a multimillion-pound payout from the sale of the collapsed courier firms assets under a deal in which it retained guarantees on leasehold properties.
The pest-control firm said in 2013 that it had kept a £20m liability that guaranteed the payment of leases on six properties a mix of offices and depots after it sold City Link to Jon Moultons private equity firm Better Capital for £1. The services company also holds a charge on certain City Link assets which means the proceeds of any sale go to Rentokil to cover those leasehold liabilities, with other creditors, including unpaid staff, placed behind it in the queue for payment. Rentokil declined to comment on the scale of the charge, but well-placed sources said the financial benefit from holding the charge could amount to several million pounds....
Note the RNS statement from RTO
on 29th April 2013
'..........The gross assets of City Link as at 31 December 2012 were £77.6m. Rentokil Initial will take an exceptional charge of approximately £40m with its Q2 results. This will comprise asset write offs of approximately £30m and additional cash costs of approximately £10m.
Rentokil Initial has retained certain parent company guarantees,
including approximately £20m relating to leasehold properties.
We anticipate that the contingent leasehold liabilities will significantly
reduce over the next 3 years and that they would be mitigated substantially if the guarantees were called....'
European headwinds have led to a target price cut for pest control and hygiene business Renotkil-Initial (RTO).
Jefferies analyst Justin Jordan retained a hold recommendation but cut the target price from 129p to 125p. The shares were trading 0.8% higher at 116.1p yesterday.
Rentokil Q3 profits before tax rose 5.7% year-on-year despite Benelux profits declining 26% year-on-year, he said. Due to intense Benelux workwear competition and subdued macro, we shave 2014 earnings per share by 3%, giving reduced 125p target price.
Whilst attracted to Rentokils leading European pest business and potential some-of-the-parts/ break-up appeal, due to European macro and foreign exchange headwinds, we remain at hold."
"Peel Hunt warms to Rentokil recovery
Peel Hunt has upgraded British services firm Rentokil (RTO) from 'sell' to 'hold'. Analyst Christopher Bamberry said: [Rentokil] has delivered reduced restructuring costs, better cash flow and 17 bolt-on acquisitions. With the group on the road to becoming a better business we have upgraded our recommendation from 'sell' to 'hold'.
The pest control to work wear group recorded a 7.7% increase in half-year profit, having pursued a restructuring programme last year. Operating profits increased to £110.2 million with the interim dividend up 10% to 0.77p per share.
Bamberry raised his target price to 114p from 108p adding: In our opinion for the shares to progress further it will require Rentokil to demonstrate that the new strategy can successfully deliver accelerated organic growth as well as its MCA plans. The shares closed 1.5% or 1.8p lower on Friday at 116.7p."
"Rentokil restructuring fails to please Peel Hunt analysts
Analysts Peel Hunt have reduced their forecasts for 2014 profits before tax for pest controller Rentokil (RTO.L) as concerns remain despite a major restructure.
Christopher Bamberry retained a sell recommendation and placed a target price of 108p on the shares.
Bamberrys concerns focus on the consistency of the company revenue growth. Even though the shares are trading in line with the sector, he believes there are better rewards elsewhere.
As Rentokill approaches the end of its major restructuring and investment programme, we remain concerned about its ability to generate sustainable and consistent organic revenue growth, he said.
In our opinion this, combined with the consistent earnings downgrades and the businesss conglomerate structure, limit the likelihood of a further equity re-rating.
Outerwall (NASDAQ: OUTR) runs two businesses vending machines (DVD) and coin counters (which automatically sort change).............
For a US trade that's closer to home, you could look at Rentokil (LSE: RTO). Previously known best for its sprawling collection for companies, Rentokil has never really recovered from the collapse in its share price in the late '90s.
However, as Chris Ford, co-manager of the Pictet US Equity Fund, points out, it's now far more focused on its core business of pest control, which now accounts for the majority of sales.
That's good news because the US is going through something of a pest epidemic right now - bedbugs have re-emerged as a major problem. To bolster this market, Rentokil recently bought US group Western Exterminator.
Rentokil currently trades at 11 times 2014 earnings, and pays a dividend of 2%. This makes it much cheaper than its major US competitor Rollins, which trades at a whopping 31 times next year's profits...."
"Hygiene and pest control firm Rentokil Initial jumoed after expectation-beating half-year results thanks to a strong second-quarter performance.LSE:RTO:Rentokil Initial was rewarded with a 8.6% jump in shares on Wednesday morning as the market ..."
I think there are a few factors which have turned this company into an outperform.
1. Finally losing citylink.
2. Better than expected figures earlier in the year.
3. There have been a few brokers who have upgraded their share price targets
4. Speculation over the possibly sale of the facilities management division. If this were to happen then you can expect a re-rating and I believe the stock could go as high as £1.20 assuming the overall market doesn't crash.
It seems to have adopted a sensible strategy in making small acquisitions to it's pest control business. Pest Control is a high margin, largely recession proof business.
Definitely worth sticking with in my opinion. I don't think the directors buy would have made a great deal of difference to the share price.
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