Tried to warn you guys. I will let you know when the valuation is reasonable for a bond proxy with slowing organic growth. |
Circa a 1/3rd down in a week. Over reaction. |
Fallen through a support level today. Where's the floor here? |
price is still dropping after the over reaction (in my view) of the update last week.
Although there's been a couple of downgrades to target prices around 6.50, the recommendations are still a 'buy'. This must be starting to be a good entry point. |
I guess no one listened in on the conference call then and is just blindly buying the dip. |
Doubled up at 448. Back in takeover/buyout territory, hopefully bounce off some support. Gross overreaction in share price IMO. |
Fenners, if you look at organic growth in the US, from the recent update,
it's currently trending below inflation. So not much growth, but still a growth rating. |
Anyone listen in on the conference call. Looks like it didnt go down too well. |
Where they got caught out in the GFC was more on the office maintenance side.
RTO, had at one time, significant contracts for maintaining office toilets, taking care of other aspects of the office environment. That would usually involve once a
week visits.
Strong case they may have significantly overpaid for Terminix. |
As for buying Terminix - I looked at their published accounts at the time and without explanation that I could find, their accounts were awful and the transaction looked way over priced.
I posted on another thread I believe where RTO was being discussed that there did not seem a justification for the price and I expected it would take 3 years from then for the share price to regain the same as it was prior to announcing the transaction.
I am surprised it has recovered so well up to now - but if it goes back to my 3 year (or longer) timescale for the synergies to be reflected in the share price that would be what I expected then anyway. |
 >mortal1ty
You were describing RTO as a "bond proxy"
I chose to give some relevant examples from that days RNS to show its not.
I challenged your definition of RTO the whole company being a "bond proxy " because it is not and has not been at least in the last decade or more.
Other companies ,like CSN or PHNX or IMB are more akin to bond proxies. They have models that left to their own devices will generate lots of cash and pay high dividends but the business will decline over time.
RTO is nothing like them.
Choosing instead to focus on the short term organic growth (which is still growing !) is trying to move the goalposts after I challenged you.
As for organic growth we already know that post covid bed bugs will contribute.
The Welch govt banning glue traps for rats will likely result in growth of more expensive remedies.
Population growth / density and climate change world wide will most likely add even more pests to be controlled.
So in principal any idea that RTO should move to ex-growth without acquisitions is imo completely flawed.
As predicted you tried to defend your "bond-proxy" comment ... |
Should be an interesting call. |
The company has a conference call with analysts at 1:30pm today to expand on yesterday's update |
Mortal, good post and get the point you are making.
Pest control is predominantly seen as non cyclical so that explains some
of the recent strength. Longer term they should prosper,
but RTO paid a sky high price on the very large Terminix acquisition, a deal they
did not need to do. |
They expect total synergies of "at least 200mm" by 2025, 60mm of which are this year only |
Bonds yields directly influence valuation of stocks.
You are right you can ignore them. The market probably won't though, and will compress the valuation of Rentokil.
My point was many companies (with similar characteristics, i.e. "good companies doing well") have suffered from higher bond yields. Rentokil has not.
So relatively to other "good companies doing well", Rentokil has a much worse risk reward profile. You can see this, in its high sensitivity to slight bits of bad news. Nothing remotely bad is priced in. |
This company ran into trouble in the early noughties buying growth, likely to repeat the same mistake judging by the above remarks, already on a sky high rating. |
.... That is a silly argument.... The bond yield will change a lot... Its not a fixed entity...
You cannot base a portfolio on bond yield amounts on any given day... That is the quick way to lose your shirt.
You invest in companies that are doing well. Sit back and wait.
Following bond yield rates is a mugs game of day trading. |
fenners.
You know I was referring to slowing 'organic growth'.
If you want to talk about synergies. They paid $6.7bn for Terminix. Even if you attribute all $60m synergies to this deal, those synergies represent a return on capital of less than 1%.
Or another way of looking at it. Terminix makes about $2.1bn in sales. Adjusted net-income of c. $200m.
If you take that $200m net-income + $60m synergies = $260m.
$260m / $6.7bn = c. 4% return on capital employed.
That is less than the current 10 year bond yield, and certainly less than their cost of capital. Management would have been best of not buying Terminix.
So 'buying organic growth' can actually destroy shareholder value. |
Back in the day they offered office services, less specialist.
If you read through the FY presentation on the investor relations sight it
will answer most of your questions. |
Thanks EI: They do Covid-19....
Phew.
Seriously its going to be a bad winter again...
Thinking about selling up my entire portfolio (apart from RTO) and sitting it out...
Not sure... |
The above gives an idea of their UK offering. |
They made a fortune for a brief time disinfecting offices and public spaces, which has now tailed off. |
EssentialInvestor:
Do you know if RTOs hygiene business is related to COVID?
I'm sorry to report its back again and its very unpleasant.. (like a bad flu this time, last time many said it was just like a mild flu)...
Its going to be a tough Christmas. Sorry. |
Well RTO far from a bond proxy during the GFC, their business was hammered hard.
Tbf hygiene/contract cleaning represented a much greater % of their overall business
back then.
The earnings multiple tends to be overlooked and it had been pushed to stratospheric
levels which left ample room for any disappointment to hit hard.
They did not need the Terminix acquisition but did it anyway. |
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