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  • April 27, 2020 08:36 PM AEST
  • Team Kalkine

The strong investor sentiments weighed on the European markets as FTSE-100, and Euro Stoxx 50 indices were trading in green. The FTSE-100 index was trading at 6,167.91 up by 0.34, while Euro Stoxx 50 index was trading at 3,241.02 up 0.69 per cent (as on 26th June 2020, before the market close at 3:42 PM GMT+1).

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  • The British car production plunged 95 per cent in May as only 5,314 vehicles were manufactured whereas only 197 cars were produced in April.
  • The Brent oil price was down by 0.78 per cent trading at USD 40.73 per barrel (as on 26th June 2020, before the market close at 3:55 PM GMT+1).

Given the above market conditions, we will discuss two industrial stocks - Rentokil Initial PLC (LON: RTO) and Speedy Hire PLC (LON: SDY). As on 26th June 2020, (before the market close at 3:55 PM GMT+1), RTO increased by approximately 2.38 per cent whereas SDY’s stock price was down by around 1.01 per cent. Let’s walk through their operational and financial updates.

Rentokil Initial PLC- (LON: RTO) – Launched COVID-19 dedicated disinfection services globally

Rentokil Initial PLC is a UK domiciled FTSE-100 listed Group. The Group is primarily a commercial pest control company but operates under three segments, including pest control, hygiene and protect & enhance. The Group has a global presence.

Q1 FY2020 Results (three months period ended 31st March 2020) as reported on 16th April 2020

The Group reported revenue (including acquisition and excluding disposal) of GBP 630.5 million, which was up by 7.2 per cent on constant exchange rate year on year. The pest control, hygiene and protect & enhance revenue increased by 9.3 per cent, 4.6 per cent and 1.9 per cent, respectively.

As the COVID-19 effect started to unfold, it was clearly visible on the Group’s performance. In March, the pest control and hygiene revenue increased by 6.6 per cent and 2.6 per cent, respectively; however, protect & enhance revenue declined by 2.3 per cent. In March, the revenue in Italy and India was down by 15.3 per cent and 20.1 per cent, respectively. The pest control business operates on the contract basis, but the industry felt the brunt due to closure of hotels, restaurants and offices.

The Group has launched specialized disinfection services given the current pandemic where it has trained close to 7,000 of the co-workers to perform sanitization services, which is now offered in 60 new markets with a future pipeline. The specialized disinfection service is catering to clients such as colleges, offices and emergency vehicles.

Performance in FY2019

(Source: Company Website)

Actions were taken to preserve cash

The Group has saved close to GBP 100 by taking preventive cash reduction measures. The higher management has taken a salary cut, whereas some of the workforces have been put on furlough. The Group has suspended dividend for FY2020, put M&A activity on hold and slashed discretionary capital expenditure, all these measures have translated to a cash saving of close to GBP 500 million for FY20. The Group received funds under the government’s CCFF scheme and withdrew GBP 550 million from the available revolving credit facility. As on 31st March 2020, the Group had total cash of GBP 1.2 billion including funds drawn from the credit facility.

Share Price Performance

1-Year Chart as at June-26-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Rentokil Initial PLC’s shares were up by 2.94 per cent to trade at GBX 514.40 per share (as on 26th June 2020, before the market close at 1:44 PM GMT+1). Stock 52 week High and Low were GBX 535.20 and GBX 289.20, respectively. The Company had a market capitalization of GBP 9.27 billion.

Business Outlook

The Group expects that the business performance will be impacted in Q2 FY2020, which is set following the pressure felt in the last two weeks of March. The increased concern over sanitation will keep the demand for pest control and hygiene positive. The Group expects that as the business reopens, there will be a need for sanitization and disinfection where the pest control and hygiene business play a significant role. The Group will focus on cross-selling the hygiene services to a broader portfolio of pest control clients.

Speedy Hire PLC (LON: SDY) - Suspended the final dividend for FY2020 to preserve cash

Speedy Hire PLC is a UK based tools and equipment hire service company, which is included in FTSE All-Share. The Company provides services in the UK, Ireland and UAE, and has a client base from large contractors to local SMEs. The Company was listed on the London Stock Exchange in the year 1993.

FY2020 Annual Result (year ended 31st March 2020) as reported on 23rd June 2020

The Company reported revenue of GBP 406.7 million up by 3.0 per cent year on year. The gross margin improved to 55.1 per cent from 54.3 per cent a year before. The adjusted profit before tax was GBP 34.9 million.

By region, revenue in the UK was increased to GBP 361.3 million. The revenue in Ireland and UAE was GBP 10.2 million and GBP 35.2 million, respectively. By activity, the hire & related activities generated revenue of GBP 240.5 million up by 1.7 per cent. The services revenue increased to GBP 162.0 million.

The hire fleet had a net book value of GBP 227.1 million. The asset utilization stood at 56.6 per cent prior to the impact of COVID-19. To preserve cash, the Company has halted all discretionary expenses. The Company suspended the final dividend for FY20.

Annual Result FY2020

(Source: Company Website)

Trading Update as reported on 8th June 2020

Despite the impact of the pandemic, in April 2020, the Company reported revenue that was better than management’s expectation; however, it was down by 35 per cent year on year. The reduced revenue was primarily due to low equipment hiring. The hire revenue was down by 17 per cent year on year for the week ended 5th June 2020, although the hiring activity improved slightly in the month of May as the lock-down was eased.

As on 31st May 2020, the net debt was GBP 68 million; the Company had credit facilities of GBP 180 million due to expire in October 2022. As on 5th June 2020, around 33 per cent of the total workforce was on furlough.

Share Price Performance

1-Year Chart as at June-26-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Speedy Hire PLC shares were down by 0.67 per cent to trade at GBX 59.20 per share (as on 26th June 2020, before the market close at 1:44 PM GMT+1). Stock 52 week High and Low were GBX 88.00 and GBX 34.60, respectively. The Company had a market capitalization of GBP 313.98 million.

Business Outlook

The Company has suspended all the guidance for the upcoming period, given the uncertainty in the economic conditions. The Company will remain focused on the strategy to acquire specialist businesses and to grow SME customers. The Company plans to seek longer-term visibility by extending existing contracts and winning new contracts.

 


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