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Rentokil benefits from workwear JV

The joint venture with Haniel gives the group space to focus on pest control and hygiene
August 1, 2018

The stark contrast in reported earnings for Rentokil Initial (RTO) has negligible relevance in terms of trading, as last year's half-year figures were artificially boosted by management’s decision to spin out the workwear and much of the hygiene business into a joint venture with private equity group Haniel, while the  introduction of the IFRS 9 and IFRS 15 accounting standards also served to skew comparisons. You get a clearer view of how the group is faring by 'ongoing' half year operating profits of £135m, representing a 13 per cent rise at constant currencies. 

IC TIP: Hold at 334p

Under the hood, the core business and its strategy for growth remains familiar. Management is continuing to focus on building out pest control, with revenue for the segment up 13 per cent overall, or a creditable 4 per cent on an organic basis. Despite transferring much of the hygiene business into the joint venture, the group retains operations in 40 countries. The group’s acquisitive appetite remains as keen as ever, evidenced by deals to acquire 20 pest control and three hygiene businesses in the period under review. With £165m spent so far, the group has left its full-year guidance for M&A spend unchanged at £200-£250m.

Analysts at Peel Hunt are forecasting adjusted pre tax profit of £303m, giving EPS of 12.8p in 2018 (2017: £287m, 12.1p).

RENTOKIL (RTO)   
ORD PRICE:334pMARKET VALUE:£ 6.15bn
TOUCH:333.7-334p12-MONTH HIGH:356pLOW: 257p
DIVIDEND YIELD:1.2%PE RATIO:33
NET ASSET VALUE:56p*NET DEBT:106%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2017**1.2359331.61.14
20181.181104.691.31
% change-5-82-85+15
Ex-div:09 Aug   
Payment:12 Sep   
*Includes intangible assets of £1.36bn, or 74p a share **2017 figures are not restated for the introduction of IFRS9 and IFRS15