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Hi Monks. I owe apologies to everyone if I got a bit ratty on here. I am gonna think twice before I open my trap again. Even if the SP rise gets snared I am not gonna take the bait.
Hopefully this has now removed some of the uncertainty around the Terminex merger.
The management team at RTO can be relied upon to deliver, they showed this during covid and looked to have done the same with this takeover.
investors are getting their slice of cheese today. The SP had been trapped in a narrow range but a near 7% jump on results means the cat is out of the bag here. Been picking these up recently so am happy to see a rerating. Fair value 600p?
Humans are naturally filthy, disgusting creatures whose activities attract a lot of pests. Rentokill is the world's biggest pest controller - as the population continues to boom due to our inability to stop multiplying like mice, business will continue to boom for this company - at some point soon the US acquisition is really going to pay off and the share price will ultimately move a lot higher.
...has been Louse-y. I had been hoping for a tick up but I am literally scratching my head at why this one isn't higher. Might be worth tucking a few away in the corner until its rat-ing improves?
A good set of results. They have done better than their US competitor (Rollins) in holding up profits with the inflationary headwinds.
Nice to see their Pest Connect picking up momentum as this is a good differentiator from other pest control companies for rodent control and should offer wage savings going forward.
Many thanks your full response, much appreciated.
Well, given the fall in the S&P since the offer they clearly over payed for Terminix. Some of the cost of the takeover is for cash which is going to be more expensive in todays market. It is however noticeable that the sp has picked up since they launched the prospectus for the bonds to cover this. The costs are certainly higher than their last bond issue, their previous 600M 8 year bond (in 2020) had a 0.5% coupon but I guess their margins are such that they can make it work.
As a business that basically involves someone driving around most of the day they have labour and fuel inflation headwinds. These have been mentioned by Terminix (and Rollins in their last presentation).
Terminix still have outstanding Legal issues over historic termite lawsuits so although RTO were well aware of them it is another risk factor. Takeovers are also expensive, Terminix have already spent a lot on this and the cost to RTO will be even higher.
On the positive the takeover will put the company in a very strong leading position , it is a fairly defensive sector and they should be able to keep/rebuild? margins over time. I really like the Pest Connect offering which gives them a clear edge over competitors and will help to reduce labour and travel costs ( this has been held back by the chip shortage but this is now easing).
I though H1 results were originally due yesterday? so we should get a better idea of how things are when these come out.
On June 20, 2022 issuer Rentokil Initial released international bonds (XS2495087137, XS2494946820, XS2494945939).
• In the amount of GBP 400 mln with the coupon rate of 5% maturing in 2032. The issues were sold at the price of 98.37% at par with the yield of 5.213%. The bookrunners of the placement were Banco Santander, Bank of China, Barclays, BofA Securities, HSBC, ING Bank, SEB, Wells Fargo.
• In the amount of EUR 600 mln with the coupon rate of 4.375% maturing in 2030. The issues were sold at the price of 99.663% at par with the yield of 4.426%. The bookrunners of the placement were Banco Santander, Bank of China, Barclays, BofA Securities, HSBC, ING Bank, SEB, Wells Fargo.
• In the amount of EUR 850 mln with the coupon rate of 3.875% maturing in 2027. The issues were sold at the price of 99.586% at par with the yield of 3.968%. The bookrunners of the placement were Banco Santander, Bank of China, Barclays, BofA Securities, HSBC, ING Bank, SEB, Wells Fargo.
Dunno Rugs bit I definitely smell a rat here.
Any idea what has caused the steady price decline we have seen over the past few months ?
He clearly did not feel this was quite enough so he topped it up by exercising a further £400K share option.
MD Asia is retiring, he exercised his share options to generate a nice retirement bonus of £1,944,261.64....
No objection from the US equivalent of the Monopolies and Mergers Commission .
They have said, that with one exception, all of the major holders of both companies are in favour so it looks all set to go forward but with the final deadline now being moved to the end of the year.
They are borrowing quite a bit to cover the cost of the acquisition at a time of increasing interest rates but with a BBB rating hopefully they will be able to still do this at a level to make it worthwhile.
I thought that they were very bullish about their prospects at the Q&A, CEO also seemed reasonably confident that the takeover will go ahead.
It is a shame that the chip shortage has slowed the roll out of Pestdirect which I think is a great offering that help distinguish them from other companies.
Lets see what the brokers come up with over the next couple of weeks.
Fully agree with you Monkshood. Surprised see any fall let alone 40p
Surprised by the negative reaction. Given the issues with covid across their geographies over the past year I thought that the return off core business had done a reasonable job of replacing the income from disinfection services but with Omicron during this period it was not surprising that it took a bit off the final quarter.
Plenty of scope for further recovery as things return to normal (with regards covid). They have no exposure to Ukraine or Russia.
Their performance in pest control in the US was strong compared to both Terminix and Rollins which is a good sign that they have got their business model correct.
A couple of other points from their presentation.
'We are off to a strong start in 2022 and expecting to continue our current trajectory throughout the new year'
'While I defer specifics on the closing time line to the Rentokil team and the earnings call they have scheduled later this week, I will share that all work streams remain on track for the previously communicated expectation for a closing in the second half of 2022.'
‘In the fourth quarter of 2021, Terminix reported five percent year-over-year revenue growth and three percent organic revenue growth.(4)
Termite and home services revenue growth was nine percent, predominantly all of which was organic growth. Termite and home services completions increased 11 percent, driven by higher demand for termite services and increased cross selling of home services to existing customers. Termite renewals increased seven percent, due to increased volume and improved price realization.
Residential pest management revenue growth was five percent, reflecting organic revenue growth of four percent. Organic revenue growth was driven by improved price realization and improved trailing 12-month customer retention rates.
Commercial pest management revenue growth was two percent.’
It will be interesting to see how RTO have done, especially in commercial which they specialise compared to Terminix who have more focus on residential.
Costs-
‘Production labor increased $5 million, primarily due to labor market driven increased turnover year-over-year and investments in trainees to improve staffing levels in advance of 2022 peak season. Direct cost productivity reduced expenses $6 million year-over-year, driven by improvements in fleet management, lower fuel prices primarily related to favourable fuel hedge rates, and productivity from the insourcing of certain national accounts customers.’
Note- they had lower fuel prices because of hedging in contrast to Rollins who said that fuel increased their costs by $4M, but more cost due to staff turnover.
-RTO/Terminix have a scheme in place to retain key senior personnel-
RTO’s results on Thursday so provided they are at least in line with Rollins/Terminix they should be OK.
Will they publish an estimate as to how many ants and termites they have exterminated and the biggest ant and termite mound they have found? It's these kind of statistics which we find particularly interesting at home..
Rollins results were quite good . (low double digit growth) and their sp has started ticking up since their results.
Termite control revenues and profits have been improving (13%) due to both an increase in business and in the number of claims against them reducing. This was mainly ascribed to better management. This shows it can be done with the correct management so hopefully RTO will be able to instil this in Terminix (if they get the deal passed the FTC).
Pest- commercial sales increased nicely (RTO’s main area)– due to post covid rebound.
Inflation headwinds were discussed.
Material and supplies –some supply problems and cost increases mainly for termite and ant – recovering by product mix used and increasing prices
Staff costs not too bad, Termite technician costs increasing.
Main cost inflation has been Fleet expenses – 50% increase cf q4 (fuel -increased cost $4.5M) and repair double digits– expected to continue.
Typically Rollins has been a reasonable bellwether for RTO’s US operation so I am hoping for an equally good showing from them against comparable headwinds when they release their results at the start of March.
Terminix should also be releasing their results in the next couple of weeks.
My university professor told us a fascinating story about the rats who live in the Paris subway. The subway cars had buffers whose bellows were made from leather. The rats would nibble the leather and enter the hollow steel chamber within the buffer pistons. When the subway cars hit their buffers, the rats could not escape and the air within the pistons was compressed. By Boyles law PV/T must be conserved. So when the volume of the air was reduced the pressure and temperature was increasing. This caused the rats to become 'pressure cooked' leading to many buffer problems on the Paris subway. The leather bellows were replaced with metal bellows which the rats could not nibble through solving the problem.
It may even have been that Omicron evolved in mice /rats and then moved back into humans.
https://www.biorxiv.org/content/10.1101/2021.12.14.472632v1.full.pdf
WHO likes to say, because of the potential for evolution of variants, that no one is safe until the whole world is vaccinated. iIf we are going to also have to view the entire rodent population in this then it will be a long time coming....
Apologies -wrong link-
Should have been-
In vitro evolution predicts emerging CoV-2 mutations with high affinity for ACE2 and cross-species binding
https://www.biorxiv.org/content/10.1101/2021.12.23.473975v1.full
Some of the latest research indicates that mutations in Omicron mean that it is now able to infect rats (below).
If rats (and mice?) can then act as reservoirs for evolution of new variants there will be a lot of focus on controlling the rat populations - should be good for RTO.
https://www.ncbi.nlm.nih.gov/labs/pmc/articles/PMC4836852/
'These mutations, already found in Omicron and other emerging CoV-2 variants, thus have the potential to both increase human transmissibility and extend these variants into rodent populations. Acquisition of mutations that enable CoV-2 to bind rat ACE2 is a cause of concern, as this has the potential to facilitate transmission of the virus to a species that is widespread and lives close to humans.'
Yes- 9 of them purchased shares.
Not sure why they did not do it when they were <520, but that is a pretty bullish batch of purchases