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Rentokil reveals FX anxieties for 2018

The group has continued to grow both organically and from acquisitions, but warned of challenges to profit unless foreign exchange woes right themselves
March 1, 2018

Shares in pest control giant Rentokil Initial (RTO) dipped on release of the group’s 2017 results, as it revealed that negative foreign exchange movements could hit statutory profits and cash flows to the tune of £10m-£15m through 2018. Long-term investors, however, will note operational improvements for the period under review, evidenced by rising free cash flow and net debt down by around a quarter.

IC TIP: Hold at 273.5p

Profits of £449m made on the disposal of various businesses heavily skewed profit figures in the latest results, but on an underlying basis growth was still solid. Operating profit for the ongoing business was up 14.8 per cent in constant currency to £295m, while adjusted EPS was up 5.2 per cent.

As ever, acquisitions have been a key part of the group’s strategy. It spent £281m on 41 businesses during the year, primarily in the pest control sector. The aim behind the group’s acquisitions is to build “density”, increasing the number of customers in each area it operates in and the number of services it sells to each customer. To encourage this, 80 per cent of the sales team in its hygiene business now receive commission based on margins, rather than purely on sales.

Analysts at Peel Hunt are forecasting adjusted pre-tax profit of £306m, giving EPS of 12.9p in 2018 (from £287m and 12.2p in 2017).

RENTOKIL INITIAL (RTO)  
ORD PRICE:274pMARKET VALUE:£5.03bn
TOUCH:273.4-273.8p12-MONTH HIGH:339pLOW: 236p
DIVIDEND YIELD:1.4%PE RATIO:7
NET ASSET VALUE:51p*NET DEBT:99%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131.801124.52.31
20141.741637.02.59
20151.761596.82.93
20162.172099.23.37
20172.4171437.23.88
% change+11+241+304+15
Ex-div:12 Apr   
Payment:16 May   
*Includes intangible assets of £1.22bn, or 66p a share