A stock I’m tempted to buy this March is Rentokil Initial (LSE:RTO), for its defensive nature and high-quality brand.
As it stands, the Rentokil share price is not cheap, with a price-to-earnings ratio (P/E) of 33, and that’s little wonder with so many positive attributes. It’s a global favourite for pest-control and hygiene products with an admired brand that’s instantly recognizable in dozens of countries. Its hygiene division offers a wide range of products that can be found in public and private washrooms internationally.
Disease prevention
Protecting against the dangers of pest-borne disease and the risks associated with poor hygiene is the purpose of the Rentokil Initial business. It stands to reason that its services will be called to fight the ongoing spread of coronavirus and other issues magnified by public health worry.
The long-term demand for pest control services has been steadily increasing as a result of climate change, workplace regulations, and growing urbanisation. More recently, the coronavirus outbreak has instilled fear and panic, so hygiene is likely to be of increasing importance to many individuals, companies, and governments around the world.
Rentokil is already in the business of assisting in these areas and is well placed to further expand and grow.
Expansion
Rentokil has continued to forge ahead with mergers and acquisitions, which have increased its presence and brought its extensive knowledge and experience to new locations. North America boasts the world’s largest pest control market and is where Rentokil’s key focus is on growing. In 2019, it acquired 14 pest control businesses in North America, including Florida Pest Control. This top-20 pest control business with annualised revenues of $66m was acquired for £50m.
Through its 2018 mergers and acquisitions programme, the group acquired 47 businesses, 42 of which were in pest control. In 2019 it continued this trend by acquiring a further 41 businesses; 30 in pest control, 8 in hygiene and 3 in its protect & enhance line of business.
Globally the pest control market is worth an estimated £15bn, increasing annually at 5%.
Aside from the virus outbreak, the world continues to suffer daily from the effects of climate change and other challenges. East Africa is suffering from the worst locust plague in 70 years, caused by heavy rainfall and cyclones, which is devastating food security. All this points to future demand for services such as pest control and hygiene.
Corporate social responsibility
Rentokil runs several initiatives to meet its corporate responsibilities, including a bid to stamp out malaria, through mosquito control in Africa, Asia, and other tropical regions. It’s also on a mission to balance its carbon footprint and improve lives through charitable and community support with schemes such as bed bug treatments for orphanages in developing countries.
Positive financial metrics
Rentokil Initial offers a dividend yield of 1% with earnings per share (EPS) at 15p and EPS growth of 29%. The company doesn’t have high debt and looks to be financially stable.
Its 2019 preliminary results, released at the end of February, showed growth in all its operating regions. Adjusted pre-tax profit was up 10.7% to approximately £341m and revenue was up £2.7bn. It also achieved its highest level of annual growth in 15 years at 4.5%.
I think Rentokil Initial is a good addition to any long-term portfolio, and I think it will continue to reap rewards for shareholders in 2020 and beyond.
