Last February Rentokil Initial (RTO) announced its 'right way' strategy, which is designed to reduce debt and drive higher revenues by focusing on high-growth markets - and evidence suggests the strategy is starting to pay off. While the strong pound dampened reported full-year revenues, they grew 2.7 per cent at constant exchange rates, while underlying operating profits were up 6.5 per cent.
The group has sold its Initial Facilities business to fellow support services group Interserve (IRV) in order to concentrate on its core pest control, hygiene and workwear categories. The sale of Initial Facilities helped cut net debt by £260m as well as freeing up an additional £93m in cash flow. This should help with Rentokil's accelerated M&A strategy.
The group made 30 acquisitions during the year, expanding its footprint in profitable established markets such as the UK, as well as entering new markets including Chile and Colombia. Management is to allocate around £50m a year for future acquisitions. The group's pest and hygiene businesses have already entered potentially lucrative emerging market cities such as Rio de Janeiro and São Paulo. As a result, revenues for the group's 'emerging quadrant', which includes Asia, Africa and Latin America, grew by more than a fifth. However, trading remained tough for the Benelux business, with adjusted operating profits down by more than a fifth to £40m.
Broker JPMorgan Cazenove forecasts adjusted EPS of 8.5p in 2015, up from 7p last year.
RENTOKIL INITIAL (RTO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 131p | MARKET VALUE: | £2.5bn | |
| TOUCH: | 131-132p | 12-MONTH HIGH: | 135p | LOW: 110p |
| DIVIDEND YIELD: | 2.0% | PE RATIO: | 19 | |
| NET ASSET VALUE: | 5p* | NET DEBT: | £775m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 2.5 | 14.5 | -1.3 | nil |
| 2011 | 2.5 | -50.5 | -3.8 | 1.33 |
| 2012 (restated) | 2.2 | 108.0 | 3.9 | 2.10 |
| 2013 (restated) | 1.8 | 112.2 | 4.5 | 2.31 |
| 2014 | 1.7 | 163.2 | 7.0 | 2.59 |
| % change | -3 | +45 | +54 | +12 |
Ex-div: 16 Apr Payment: 20 May *Includes intangible assets of £431.3m, or 23p a share | ||||
