Rentokil Initial’s (RTO) tagline is 'Protecting people. Enhancing lives', but it might as well be 'if it ain't broke, don’t fix it'. The group’s longstanding strategy for combining organic growth with a huge appetite for acquisitions – 47 businesses bought in 2018, for £298m – delivered adjusted pre-tax profits 2 per cent ahead of broker Peel Hunt's expectations and precipitated increased guidance for 2019.
The key to management’s strategy is to build ‘density’ – the range of services it can offer to each customer. For this reason, it is investing in high-growth areas such as fumigation and ‘vector control’ – a form of pest control that focuses on reducing the spread of pathogens by animals.
The growth story might seem incongruous with the sharp drop in statutory profits. At the end of 2018, Rentokil agreed on the full buyout and wind-up of its defined-benefit pension scheme, which is expected to complete in 2020. This led to a £342m non-cash charge, reflecting the scheme’s accounting surplus. Alongside this, last year’s profits were boosted by £449m in disposal proceeds, which have further skewed the comparison.
Broker Peel Hunt raised its forecasts following the announcement and now expects adjusted pre-tax profit of £335m, giving EPS of 14.2p (up from £308m and 13.07p in 2018).
|RENTOKIL INITIAL (RTO)|
|ORD PRICE:||350p||MARKET VALUE:||£6.45bn|
|TOUCH:||349.9-350.1p||12-MONTH HIGH:||361p||LOW: 257p|
|DIVIDEND YIELD:||1.3%||PE RATIO:||NA|
|NET ASSET VALUE:||45p*||NET DEBT:||139%|
|Year to 31 Dec||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £1.51bn, or 82p a share|