ii view: Rentokil generates decade-high organic growth
Revenues rise again, but, following a 30% share price gain year-to-date, should investors be chasing?
17th October 2019 13:10
by Keith Bowman from interactive investor
Revenues rise again, but, following a 30% share price gain year-to-date, should investors be chasing?
Third-quarter trading update
- Currency adjusted total revenue up 9.6% to £727.2 million
- Currency adjusted ongoing revenue up 9.8% to £723 million
- Ongoing organic revenue up 5.5% and 4.3% from acquisitions
Chief executive Andy Ransom said:
"I am pleased with our Q3 results and our group organic growth of 5.5% is our highest level of quarterly organic growth in over a decade. Our performance in Q3, combined with further progress in our value-creating M&A programme, means we remain on track to meet expectations for the full year."
ii round-up:
The provider of pest control and hygiene services Rentokil Initial (LSE:RTO) reported its highest level of quarterly organic sales growth in over a decade in this third-quarter trading update.
Organic growth from its ongoing businesses rose by 5.5%, while the acquisition of 15 companies during the period added a further 4.3% of revenue.
Pest Control, which accounts for approximately three-fifths of total sales, enjoyed a 5.9% gain in organic growth. Emerging market sales grew by an impressive 12.7%.
Organic revenue for its Hygiene business rose by 4.8%, driven by good growth in the UK, Europe and the Pacific.
Rentokil's remaining Protect & Enhance business benefitted from growth in both its French workwear and UK property care businesses, with organic revenues up by 4.5%.
The share price gained by over 2% in mid-morning UK stock market trading.
ii view:
Growth via bolt-on acquisitions and the company's exposure to emerging markets both offer reasons for positivity. A focus on innovation and digital technology is also playing its part in driving growth for the pest control division.
From an investor's prospective, a seven-year record of consecutive dividend increases is not to be ignored. Group strategy is also, for the time being, clearly aimed in the right direction. However, sat on a prospective dividend yield of just over 1% and with a current forward price/earnings (PE) ratio of over 30 and comfortably above the 10-year average, some caution is warranted.
Positives:
- A strategy of bolt-on acquisitions
- Diversity in both business type and geographical location
Negatives:
- Weather can influence performance
- US-listed peer ServiceMaster has bought Nomor, Europe's fourth-biggest pest-control company
The average rating of stock market analysts:
Strong hold
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