Overview
Rentokil Initial Plc (RTO) is a Camberley, Surrey-based company that provides the pest control, hygiene and offers a range of pest control services as well as a range of other specialist services, which protect people and enhance lives, everywhere. The company's operations are spread over five geographical regions: UK & Rest of World, Europe, North America, Asia, and Pacific. The company is presently having more than 1,800 local service teams worldwide covering more than 90 cities out of the world’s largest 100 cities across company’s geographical regions.

Recent News
Rentokil Initial Plc announced that Sir Crispin Davis had decided to leave his post of company’s non-executive director due to some personal commitments.

Trading Update – Q1 FY19
Rentokil has reported ongoing revenue of £603.6 million, up by 8.9 per cent (CER). Organic growth remained healthy at 4 per cent, and 4.9 per cent growth was registered through acquisitions. In Q1 of FY19, the company signed 8 acquisitions (four each in pest control and Hygiene).

Financial Highlights – Financial Year 2018 (£, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2018, the company’s ongoing reported revenue stood at £2,493.0 million, reflecting an increase of 3.7 per cent on an organic basis. The company’s revenue (AER) increased by 2.5 per cent to £2,472.3 million in the FY2018 from £2,412.3 million in FY2017. The company’s ongoing Operating Profit (CER) surged by 13.3 per cent to £333.6 million in FY2018 from £294.6 million in FY2017. The company’s Operating Profit (AER) stood at £245.5 million in FY2018 from £292.4 million in FY2017. The company’s Loss before tax (AER) stood at £114.1 million in FY2018 versus a pre-tax profit of £713.6 million in FY2017. The company’s PBT (Profit before tax) dipped by 116 per cent as compared to last year data. The Loss for the period attributable to shareholders stood at £98.3 million in FY2018 versus a profit of £683 million in the FY2017. The company’s Basic loss per share stood at 5.35 pence in FY2018 against an earnings per share of 37.21 pence in FY2017. The company’s diluted loss per share stood at 5.35 pence in FY2018 versus an earnings per share of 36.90 pence in FY2017. The company’s Free Cash Flow (AER) stood at £192.0 million for the financial year 2018. The full-year dividend for FY2018 stood at 4.471 pence.

Share Price Performance

Daily Chart as at July-11-19, before the market close (Source: Thomson Reuters)

On July 11, 2019, at the time of writing (before the market close, at 1:31 PM GMT), Rentokil Initial Plc shares were trading at GBX 411.80, down by 0.39 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 414.00/GBX 280.00.

Valuation Methodology


Conclusion
Although the group’s top-line performance had slightly improved for the financial year 2018, the profitability margins have remained stagnant or declined. The company’sPBT and PAT are in the negative zone for the period. The company may not able to meet its liquidity requirement as it operates in a highly competitive market, which requires continuous investment. The company operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it would disturb the supply chain. As the company operates inmultiple geographies, its profits can be impacted negatively due to Foreign exchange rate fluctuations.
Based on the risk associated and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 413.40 (as on 10th July 2019) based on 27.40x NTM Price to earnings (approx.) on FY19E earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*The “Sell” recommendation is valid for the current price as covered in the report (as on 11^th July2019).

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