Profits no Pest for Rentokil

Clean Kitchen

Think of Rentokil and virtually only one service line becomes prominent in the mind, but pest control, although highly synonymous with Rentokil, is only a small part of their business. Little is known or understood generally of these other lines of service.

Digging a bit deeper into what Rentokil do has revealed some interesting findings, for example: -

  • Provision of industrial work wear and rugged textiles behind this
  • Specialist industrial cleaning and disinfection services
  • Grease removal
  • Dealing with bio-hazardous situations
  • Healthcare waste
  • Hand sanitisation dispensers
  • Damp repair services
  • Rapid response deep cleaning
  • Indoor plants and ambient setting
  • Signature scenting and odour remediation

It is probably fair to say that, unless you are an employee of Rentokil or have conducted research on the company, many of the services listed would come as a bit of a surprise.

Date Company Status Mid Price Target 1 Target 2 Target 3 Target 4
19/02/2015 Rentokil Initial write up £1.29 £1.38 £1.51 £1.68 £1.71

Rentokil are not a company prepared to stand still! During 2014 they made no fewer than 30 acquisitions in pursuing a better quality of revenue and profit flow and now employ circa 27,000 employees across some 60 countries.

Regarding profits, Rentokil have consistently improved pre-tax profits despite slight falls in revenues which suggests margins on their services are improving. Last figures released on 17 November showed pre-tax profits for Q3 2014 up 17% on revenues 3.4% lower.

Technically, the stock charts reveal that Rentokil spends long periods in narrow trading ranges, for example between May 2004 and December 2007 shares traded between £1.40 and £1.75 before succumbing to the financial crisis.

Latterly shares have traded in the £1.10 to £1.30 since December 2013 but financial results mean Rentokil is testing this upper limit, which if successful in breaking, would see shares back at 2008 levels.

Interestingly, the period December to April has been a good time to own these shares every year since 2008 with average returns of 36% along the way (assuming exact timing of trough to peaks every year).

Should Rentokil shares repeat moves as previous years then a break out above £1.30 would be complete and move back to the 2004 to 2007 trading range possible. Bear in mind though that an old range does present significant resistance so take note of targets 3 and 4 and do not expect Rentokil to push past these levels this time around.

It seems improving profits are no pest at all for Rentokil.

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