nk1999
16 Jan 2015
Shares Magazine Buy: RentokilAttractive growth opportunities at pest control businessThursday 15 January 2015Glamorous business models are often confused with spectacular economics, and vice versa.Pest control, hygiene and workwear may not sound like the classiest of industries, but they have served Rentokil Initial (RTO) well for the best part of a century - and its shareholders for almost as long.Now looks like an opportunity to pick up shares in a high quality, market-leading business at a reasonable price and at a time when it is poised to pursue new avenues for growth.Rentokil was a darling of the stock market in the 1980s and 1990s, when its market capitalisation topped £14 billion. Dubbed a 'permanent growth stock', it was a core holding in the portfolio of legendary investor Ian Rushbrook at Personal Assets Trusts (PNL) and one he held right through to his death in 2008.City fund manager favourite Neil Woodford was also a fan while at Invesco Perpetual though does not appear to have added it to his new fund at CF Woodford.Certainly, the easy money in Rentokil looks like it has been made. The stock traded lower than 50p in the 2008 financial collapse and could even have been bought for little over 60p in late 2011, when Woodford was hoovering up stock.But the successful execution of Rentokil's turnaround plan, as well as a number of developments this year, still make the stock look attractive over a reasonable time frame, in our view.Streamlined businessFirst, it has offloaded underperforming and non-core assets. Its facilities management business was sold to fellow outsourcer Interserve (IRV) in March 2014 for around £250 million. Rentokil also shipped out its problem logistics business City Link to Jon Moulton's Better Capital (BC12) investment vehicle for £1. It was subsequently, and acrimoniously, placed into administration, losing money at a rate of £500,000 a week.Second, it has re-invested funds into areas which should eke out better returns in the future: its Rentokil pest control business and the Initial Hygiene and Workwear offerings.Last week, it bought three more pest control businesses, taking the number of deals in the past 12 months to 30. Twenty three of these have been small pest control 'bolt-ons'. Chief executive officer Andy Ransom reckons the business can generate returns on capital of 15% or more by investing in these three core product areas. The strategy, largely, is to bulk out operations already up and running in countries across the world.Rentokil is a 'top pick' at RBC Capital Markets, which has a 'buy' rating and 150p price target on the stock. Analyst Andrew Brooke says the investment thesis is based around a more focused business, improving cash generation and better allocation of capital.'Management has disposed of underperforming businesses like City Link and the facilities management business and the one-off restructuring costs look like they will start to drop out,' he explains.'The cost benefits have come through as a result of the restructuring and some of the incremental capital expenditure in information technology and the re-jig of the fabrics business in Europe.''Now they are in a position to allocate capital into higher growth areas of their business.'Key hazardA key risk, highlighted in Rentokil's annual report, is failure to maintain existing contracts or win new business. A 1% decline in revenue, leads to around a £8-£12 million decline in operating profit.Growth: MediumRentokil has a good track record and targets high single digit profit growth.Risk: LowThe business has been around since the 1930s and operates in stable markets.Quality: HighA market leading business with a well regarded management team.Market value: £1.21 billionProspective PE Dec 2014: 15.3Prospective PE Dec 2015: 14.3Prospective dividend yield: 2.1%Bid/offer spread: 0.2%
nk1999
03 Jan 2015
From Guardian This looks like a positive news?[link] Link’s former owner Rentokil Initial could receive a multimillion-pound payout from the sale of the collapsed courier firm’s assets under a deal in which it retained guarantees on leasehold properties.The pest-control firm said in 2013 that it had kept a £20m liability that guaranteed the payment of leases on six properties – a mix of offices and depots – after it sold City Link to Jon Moulton’s private equity firm Better Capital for £1. The services company also holds a charge on certain City Link assets which means the proceeds of any sale go to Rentokil to cover those leasehold liabilities, with other creditors, including unpaid staff, placed behind it in the queue for payment. Rentokil declined to comment on the scale of the charge, but well-placed sources said the financial benefit from holding the charge could amount to “several million pounds”....
pearlsasinger
26 Dec 2014
CityLink guarantees?? Note the RNS statement from RTOon 29th April 2013'..........The gross assets of City Link as at 31 December 2012 were £77.6m. Rentokil Initial will take an exceptional charge of approximately £40m with its Q2 results. This will comprise asset write offs of approximately £30m and additional cash costs of approximately £10m. Rentokil Initial has retained certain parent company guarantees,including approximately £20m relating to leasehold properties.We anticipate that the contingent leasehold liabilities will significantlyreduce over the next 3 years and that they would be mitigated substantially if the guarantees were called....'
nk1999
19 Nov 2014
Jefferies view From Citywire:"Rentokil target price cut on European fearsEuropean headwinds have led to a target price cut for pest control and hygiene business Renotkil-Initial (RTO).Jefferies analyst Justin Jordan retained a ‘hold’ recommendation but cut the target price from 129p to 125p. The shares were trading 0.8% higher at 116.1p yesterday.‘Rentokil Q3 profits before tax rose 5.7% year-on-year despite Benelux profits declining 26% year-on-year,’ he said. ‘Due to intense Benelux workwear competition and subdued macro, we shave 2014 earnings per share by 3%, giving reduced 125p target price.‘Whilst attracted to Rentokil’s leading European pest business and potential some-of-the-parts/ break-up appeal, due to European macro and foreign exchange headwinds, we remain at “hold”.’"
