Half-year results from Rentokil Initial (RTO) were bang in line with forecasts, supporting our two-week old buy tip (116p, 17 Jul 2014). The business appears on track with its new strategy, having reduced restructuring costs, improved cash flow and added 17 bolt-on acquisitions. A leaner, more focused operating model is also starting to pay off.
As with so many UK-listed companies, the strength of sterling muted sales growth. At constant exchange rates, however, like-for-like revenue grew 3 per cent, while adjusted pre-tax profit rose 13 per cent to £77.5m. Profitability was also helped by substantial cost savings in areas such as procurement. In fact, central and divisional overheads fell £5.4m - just over half of the £10m targeted for the year.
Pest control and hygiene were big drivers of growth, particularly in the North America and UK & Rest of World segments, where profits grew 19 per cent and 4 per cent respectively. Asia was a star performer too, with 13 per cent profit growth. Europe was the weakest link, as trading in Benelux remained subdued. Chief executive Andy Ransom said that, while the results showed the new business model was more effective, there was "still a lot of work ahead".
Peel Hunt expects full-year pre-tax profit of £194m, giving EPS of 8.1p (from £206m and 8.4p in 2013).
| RENTOKIL INITIAL (RTO) | ||||
|---|---|---|---|---|
| Ord Price: | 117p | MARKET VALUE: | £2.1bn | |
| TOUCH: | 116-117p | 12-MONTH HIGH: | 134p | LOW: 95p |
| DIVIDEND YIELD: | 2% | PE RATIO: | 22 | |
| NET ASSET VALUE: | * | NET DEBT: | £859m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 894.3 | 48.1 | 2.0 | 0.7 |
| 2014 | 854.4 | 66.8 | 2.9 | 0.77 |
| % change | -4 | +39 | +44 | +10 |
Ex-div: 13 Aug Payment: 16 Sep *Negative shareholder funds | ||||
