One FTSE 100 stock I really like the look of for the long term is Rentokil Initial (LSE:RTO). The name Rentokil resonates with most as a pest control specialist, however, there is much more to RTO than that. It has also released some excellent third-quarter trading results just today.
RTO is an international business services company with multiple facets to its operations. It is probably the most well recognised pest control businesses around. As well as pest control, it has a huge hygiene division. With close to 40,000 employees in more than 70 countries, RTO is a global powerhouse.
FTSE 100 growth champion
Since the beginning of 2020, RTO’s share price is up nearly 20%. From 453p per share at the beginning of the year, shares are trading at 542p as I write. When the market crash occurred, RTO actually rose in price temporarily but plunged to a crash-low of 340p per share in mid-March. Since that time it has recovered and today’s trading update will vindicate that recovery in my opinion.
RTO’s growth and investment viability has been a great journey for shareholders and investors alike. In the previous four years, revenue has increased year on year and has surpassed the £2bn mark back in 2017. If you rewind five years ago, shares in RTO could be purchased for just 153p per share. Based on today’s price that is a 250% increase which is fantastic organic growth.
The Q3 trading update released today points towards how successful the hygiene division has been over the last three months for RTO. Overall, ongoing operations revenue grew close to 10% compared to the same period last year. The demand for disinfection services and a return to growth in the pest control side of the business supplemented the improvement in performance.
Ongoing revenue in pest control grew by 1.3% in Q3 compared to a decline of 5.9% in Q2. Hygiene grew by a whopping 53.3% compared to Q2 when it grew 16.3%. Due to the pandemic, many companies are in need of much more stringent hygiene and cleanliness protocols and this is where RTO has benefitted.
One of RTO’s standout strategies is acquisitions and its ability to complete these regularly and amalgamate businesses to enhance its offering. Any FTSE 100 company that frequently acquires competitors and smaller companies in the same industry is an attractive investment prospect for me personally.
Buy now and hold
In addition to strong performance and organic growth, there are a few reasons I would buy and hold RTO. As I have mentioned, RTO has a particularly strong track record of acquisitions which shows it is thriving and looking to progress as a business. Due to the Covid-19 pandemic, demand for pest control and hygiene services are only increasing throughout the world.
In addition, there is a belief among leading scientists that rising pest levels are linked to climate change. This is good news for pest control businesses albeit bad news for the planet. With Rentokil’s global reach, size, and experience I foresee RTO being a great long-term buy and hold investment from within the FTSE 100 that can be picked up relatively cheaply right now, in my opinion.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.