Rentokil (RTOLN; NR/BBB/BBB) Profit Warning follow up
The equity moves look worse than the guidance cut (we see -7% to FY earnings consensus) in part because equities were holding onto +10% from early June news on Nelson Peltz/Trian fund taking a stake and another +8% on late July PE rumours. (total +18% of hopes and rumours).
We have mixed thoughts for credit - yes the low cash px bonds have been bid well in (see above) but they also the same 3 lines that benefit from a 1.25% step up (hence ceiling on spreads effectively floored for now). Hard for us to call it value though after sources downplayed validity of the PE rumours. Nelson Peltz stake as we said before we see as more of a slow burner - and what it leads to is unclear - potential for asset sales might be best case there.
Reminder CoC pricing always looks deceivingly high. What we see currently on the low-cash px lines;
- €26s 18%
- €28s 17%
We don't have a firm view on the co/secondary otherwise...but we would note it has shown good governance on the BS after the $6.7b (~£5.1b) acquisition of competitor Terminix in 2022. It was funded with $1.3b cash (~£1b) and remainder shares (20% cash/80% stock split) but still pushed leverage up to net 3.8x at the end of '22. It was set on holding onto BBB ratings and discussed deleveraging plan with raters before deciding on funding - no rating impact through the process.