Pest control and hygiene group Rentokil Initial' s (RTO) long-standing strategy of acquisitions shows no signs of slowing down. The group spent £107m on 41 businesses in 2016, well above its planned-for spend of £50m, and now plans to spend a further £150m in 2017. In fact, it has bought six businesses so far in 2017, and despite five of those being in pest control, chief executive Andy Ransom says it plans to include more hygiene companies to build density in target cities.
This strategy will put stress on the balance sheet. The net debt to cash profit ratio has increased since we tipped Rentokil back in 2015 (Buy, 153p, 18 June 2016), but at 2.5 times hasn't yet troubled the business's BBB credit rating. Organic growth has remained impressive, with a constant-currency revenue increase of 13 per cent, led by strong trading in Asia and the Americas, helping to push adjusted pre-tax profits up 17 per cent to £252m.
The group's French operations continue to drag due to a weak economy combined with tough competition. Ongoing revenues in France fell 0.9 per cent, and this is expected to continue in 2017. "We do have a plan to return it to profitable growth, it's just a question of when," says Ransom.
Analysts at Peel Hunt expect adjusted pre-tax profits of £274m, giving EPS of 11.8p in 2017 (from £252m and 10.7p in 2016).
RENTOKIL INITIAL (RTO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 236.2p | MARKET VALUE: | £4.32bn | |
| TOUCH: | 236.1p-236.3p | 12-MONTH HIGH: | 240p | LOW: 160p |
| DIVIDEND YIELD: | 1.4% | PE RATIO: | 26 | |
| NET ASSET VALUE: | 20p* | NET DEBT: | £1.24bn | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 2.20 | 108 | 3.9 | 2.10 |
| 2013 | 1.80 | 112 | 4.5 | 2.31 |
| 2014 | 1.74 | 163 | 7.0 | 2.59 |
| 2015 | 1.76 | 159 | 6.8 | 2.93 |
| 2016 | 2.17 | 209 | 9.2 | 3.37 |
| % change | +23 | +31 | +35 | +15 |
Ex-div: 6 Apr Payment: 17 May *Includes intangible assets of £1bn, or 55p a share | ||||
