Softer demand environment in North America weighs on Rentokil’s outlook

Rentokil reported a weak Q3 FY23 trading update, with sales slightly ahead of the market and our expectations, but with soft demand in the North American pest business (>60% of group sales). Consequently, the management lowered the FY adjusted operating margin guidance for North America. Given that this downgrade follows a soft demand environment in the Q2 23 as well, investors are skittish and the share price is down by >14% (at the time of writing). We maintain our cautiously positive stance o

Rentokil delivers a strong performance in H2; Terminix integration on track

Rentokil Initial reported strong H1 2023 results, which were ahead of the street’s and our expectations on sales and profitability. The management said that the Terminix integration is progressing well, with c$60m of pre-tax net cost synergies expected in FY23. The market accordingly reacted positively to this strong showing (+1.5% at the time of writing). We will increase our estimates by low single digits to incorporate the H1 results and retain our positive stock recommendation.

Solid performance in Q1; FY23 guidance confirmed

Rentokil reported a Q1 sales update ahead of the street’s expectations. The company recorded organic growth of 5.9% yoy, underpinned by positive developments across all business segments and geographies. The integration of Terminix remains on track, with the net cost synergies target confirmed for FY23. The management also reiterated the full year guidance underpinned by the resilient nature of its business as well as execution of its inorganic expansion strategy. We will increase our estimates

Robust FY22 performance; synergies from Terminix deal increased

Rentokil reported better-than-expected FY22 results. Although sales were in line with the street and our expectations, the operating profit and adjusted PBT were 3% ahead of consensus and AV estimates. Notably, the beat was partly driven by higher net cost synergies from the Terminix integration. Consequently, the management raised the guidance for synergies as well as the mid-term targets. No wonder the share price has jumped >8% (at the time of writing). We will increase our estimates and main

Lackluster Q3 update

Rentokil’s Q3 FY22 trading update was broadly in line with consensus. The group’s core business recorded robust organic growth underpinned by the essential nature of the offerings. The group also completed the Terminix acquisition for £4.2bn, partially funded by three bonds issued in June, which should result in a higher interest cost, likely explaining why the shares closed down just over 4%. We are likely to maintain our positive stock recommendation.

Core business drives strong H1 performance

Rentokil Initial reported a strong H1 22 performance, driving the share price up 5.8% in the session following the announcement. The core business (i.e. excluding disinfection) posted double-digit growth across the three segments, highlighting the resilient nature of the offerings. The margin improved 60bp on the back of increased route-based density and M&A synergies. The company remains on track to complete the Terminix acquisition in 2022. We reiterate our positive stock recommendation.

No frills Q1 trading update

Rentokil’s Q1 22 trading update was in line with the street expectations. While the core business (excluding disinfection) registered strong organic growth of 8% (vs 2.5% in Q1 21), the total organic growth of -2% was impacted by the unwinding of the strong disinfection revenue in H1 21. All three core businesses witnessed strong growth momentum, with positive growth in all regions. Despite the ongoing macro-economic uncertainty, the management expects the business to perform well in FY22.

Softer than expected closure to FY21

Rentokil’s FY21 performance was below expectations. Although the core businesses witnessed a recovery, the adjusted EBIT was c.6% short of the street expectations. The margin dent in the Hygiene business (due to the unwinding of disinfection revenue) was the key difference. Although management confirmed the mid-term targets, the stock price slumped more than 5%. We do not see any structural issues with the business and reiterate our positive stance on the stock’s valuation.

Rentokil takes the Terminix bait!

Rentokil has announced the plan to acquire Terminix Global, a leading player in the US pest control market. Both companies specialise in different end markets (commercial for Rentokil and residential for Terminix) which should lead to an expanded and well-diversified customer base. Despite being margin accretive, this cash and stock deal (20:80) is dilutive to the stock’s valuation per share. The post-synergy valuation multiple is not expensive. We maintain our positive view on the stock.

Q3 update falls short of expectations

Rentokil’s Q3 FY2021 trading update came in behind our and consensus estimates. The positive impact of organic revenue growth in the core businesses and bolt-on acquisitions was partially mitigated by the unwinding of disinfection revenue. While management maintained FY2021 guidance for the core businesses to generate mid-single-digit organic revenue growth, the share price dropped c.2% today on the back of an underwhelming Q3 update. We will tweak our estimates and target price, and are likely

Hygiene & Wellbeing business enjoying the spotlight

Rentokil hosted a Capital Markets Day, outlining its strategy and upgrading the medium-term outlook for the two core businesses — Pest Control and Hygiene — with a particular focus on the latter, given the new-found importance in a post-COVID-19 world. The reorganisation of both business segments and regional structure was also announced, effective from FY2022. France Workwear becomes a standalone third business segment, with management not ruling out an outright disposal. Overall, no needle-mov

Resurgent core businesses drives better-than-expected results

Rentokil reported strong H1 FY2021 results, reflected in the share price jump today (>6% at the time of writing). Re-opening of client premises along with strong M&A activity fuelled the top-line growth, up c.18% yoy. Profitability improved by >50% yoy, coming in well ahead of street expectations. Management expects mid-single-digit organic growth in FY2021, while raising its projected M&A spend. We will revise our estimates and target price upwards, and are likely to maintain our positive stock

Solid Q1 results

Rentokil reported Q1 FY2021 results that were in line with our estimates. The ongoing revenue continued to register strong growth on the back of one-time disinfection services (although qoq lower) and higher pest control sales (the latter aided by a positive scope impact). However, the Core Hygiene (excluding disinfection services) and Protect & Enhance segments registered negative revenue growth. Having said that, all three businesses registered improvements during the quarter and we expect thi

Disinfection services and North America underpin Q4 and FY2020 results

Rentokil continued its strong momentum in Q4, on the back of an incremental better performance in disinfection services and a resilient North American residential pest control business. FY20 revenue came in slightly ahead of expectations with improved profitability delivering a positive surprise. However, the stock price came under pressure as investors remained jittery about: 1) management delaying the target of achieving an 18% net operating margin in North America to 2022, and 2) the anticipa

Rentokil returns to growth in Q3 FY20

Rentokil bounced back strongly in Q3 FY20, supported by a strong recovery in demand for its core pest control and hygiene services, and the ongoing need for disinfection solutions amidst the COVID-19 pandemic. Moreover, management sounded confident about the positive momentum to be sustained in Q4 FY20 and, hence, expects to meet full-year expectations and to announce a dividend during the preliminary results.

Elixirr - Outperforming competitors and the global Consulting market

Elixirr offers investors exposure to the long-term growth trends in the global Consulting market (including digitisation and the ongoing technology revolution, demand for innovation, efficiency and specialised expertise) all turbo charged by the group’s ‘challenger’ strategy driving market share gain from a low base. FY 2023 results showed the power of Elixirr’s differentiated model with revenue up +20% and adj. EPS up +22% in a market subdued by global uncertainty. With net cash of £18m, a posi

Morning Note – 22 April 2024

City of London Investment Group (CLIG LN) - 3Q IMS: return to growth

CLIG’s 3Q IMS reveals 5.5% rise in FuM in the first three months to March 2024 to US$10.1 billion. In the quarter performance added US$302m and group net inflows were US$224m.

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

LIBERUM: MindGym: Delivering on the controllables

Malvern International - Positive results confirm turnaround on track; cash-generative and a strong bid pipeline

A positive trading trajectory for MLVN has continued to emerge strongly in this morning's results, with FY23A revenues standing at £12.2m (FY22A: £6.3m / +79%) and £0.2m PBT profit as against a £1.1m PBT loss the year before (excluding a £94k fair value movement / loan write back). MLVN provides education services including (1) a range of university-related courses for overseas students, (2) adult ELT and (3) summer schools for juniors. MLVN's contract with the University of East London (UEL) st

hVIVO - FY 2023 results, revenue in-line, margin better, future is bright

hVIVO has delivered FY 2023A results in-line with the 30 January 2024 TU, with total customer revenues of £56m, growth of 16% versus 2022A. Other income related to tax credits added another £2.6m. 2024 revenue guidance of £62m has been reiterated, representing 11% growth over 2023A, and ahead of the £60m that we had previously forecast. The company has good visibility with the 2024 figure, with 90% already being covered by the existing orderbook (stands at £80m at the end of 2023), as well as in

SP Angel Morning View: Gold prices slide following profit taking as traders look to US data

The Hardman & Co Monthly: April 2024

Feature article: Steady as she goes, but could be better: A review of investment company liquidity since 2016 Liquidity is the lifeblood of equity markets. The measurement of liquid asset availability to a market or company is a way of gauging a market’s health. This article builds on our previous work, which analysed the liquidity data for non-financial trading companies, by applying the same analytical techniques to the investment companies (IC) space. We analyse liquidity for ICs as a whol

Morning Note – 26 March 2024

Anexo Group (ANX LN) - Key Supreme Court Judgement: No cap on non-whiplash compensation

Key ruling sets out the ability to claim compensation for non-whiplash injuries alongside whiplash claims, without the quantum of damages being restricted by the Whiplash Injury Regulations, supporting the Group’s legal services division Bond Turner in pursing the optimal outcome for the claimants it represents.

Hybridan Small Cap Feast - 14 Mar 2024

Banquet Buffet*** Abingdon Health 9.25p £11.3m (ABDX.L) The lateral flow contract development and manufacturing organisation announces its unaudited interim results for the six months ended 31 December 2023. Revenue increased 117% to £2.4m (H1 2023: £1.1m). The Adjusted EBITDA loss decreased 47% to £1.2m (H1 2023: £2.2m). Furthermore, reduction in operating loss of 50% to £1.2m (H1 2023: £2.4m). The Board therefore expects that H2 2024 revenue will be significantly improved compared with H1 2024

Strategic growth targeting £200m revenues by FY27

We review the potential for the group to push top line revenues towards c £200m pa over the next three to five financial years vs our £135m FY24e estimate. BEG recently issued a Q3 update which confirmed that it is trading in line with market forecasts. Over the last decade Begbies has built an increasingly broad financial services and advisory business that can perform across the economic cycle. We expect recognition of that profile to grow and evolve to reflect recognition of the value inher

Allenby Capital: Franchise Brands - Capital Markets Day

A well-attended and successful Capital Markets Day (CMD) was held yesterday with the theme being “unlocking the Group’s maximum potential and financial targets” with presentations by all Group companies and divisions. Financial targets for the Group have been set for the period from FY25 to FY27 which emphasises the growth that the Board believes the Group capable of achieving. We include these targets in our financial model with the proviso that at this early stage they are more indications of

Hardman & Co Insight - Asset managers had a poor 2022

Asset managers had a poor 2022: the S&P Composite 1500 Asset Management Index was down 22% and, according to the Investment Company Institute (ICI), worldwide mutual funds fell by 20%, from $76tr to $60tr. When bond and equity markets fall, the results are unlikely to be pretty: with revenues trending down and multiples contracting, there is a double whammy to contend with. So how do valuations shape up now, after a bullish start to the new year? The first chart is my favourite chart of asset m