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Rentokil outperforms again

Management upped its acquisition target after beating growth expectations
July 31, 2019

Rentokil Initial (RTO) has again beaten analysts' expectations, having outperformed throughout last year. The group reported organic sales growth of 4.2 per cent for the period, its highest first-half increase in more than a decade and ahead of the group’s 3-4 per cent target. Management did not single out one area in particular as the source of the outperformance, instead noting that all regions contributed.

IC TIP: Hold at 431p

As ever, the group’s strategy was to carry out a large number of acquisitions in a bid to build “density” – the number of services it can carry out in an area or along a route. It bought 17 businesses in the period, 12 in the pest control sector and five in hygiene. Spurred on by the group’s performance in the first half, management is now planning to increase its spending on M&A for the full year to more than £250m, from its previous target of £200m-£250m.

All that spending pushed net debt up by almost a third, but management is planning to use the roughly €140m (£128m) proceeds from the sale of its joint venture with private equity group Haniel to reduce its leverage. 

Broker Peel Hunt increased its forecasts following the results announcement, and now expects adjusted pre-tax profits of £338m, giving EPS of 14.3p for 2019, up from £308m and 13p in 2018.

RENTOKIL INITIAL (RTO)  
ORD PRICE:431pMARKET VALUE:£7.97bn
TOUCH:431-431.6p12-MONTH HIGH:433pLOW: 280p
DIVIDEND YIELD:1.1%PE RATIO:na
NET ASSET VALUE:46p*NET DEBT:168%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20181.181104.691.31
20191.301144.751.51
% change+10+4+1+15
Ex-div:8 Aug   
Payment:11 Sep   
*Includes intangible assets of £1.6bn, or 86p a share