LONDON (ShareCast) - (Sharecast News) - Following Mitie's announcement that it will dispose of its pest control operations to Rentokil, analysts at Jefferies took another run at their numbers on both parties.
Mitie revealed on Monday that it will offload its pest control unit to Rentokil on a debt/cash free basis. Jefferies estimates an exit multiple of roughly 10x EV/EBITDA - a figure it said "looks full relative" to Mitie and Rentokil's historic acquisitions.

Jefferies said the transaction was "another example of how third-party strategic buyers (especially in route-based industries) are willing to pay above-market multiples."

The broker's calculations suggested the transaction would dilute earnings per share by 2% EPS dilutive, lowering Mitie's ND/EBITDA by 0.3x to a reported rate of approximately 1.3x and assisting in narrowing the group's off-balance sheet debt and its pension deficit.

"We believe this is a welcome disposal as many believed the window of opportunity to deleverage through disposals had passed," said Jefferies.

Jefferies believes the transaction was a prime example of "the willingness for third-party suppliers to pay above-market multiples for support services assets, and that this may be the portent of further disposals", specifically highlighting Mitie's catering wing as another potential disposal.

For Rentokil, Jefferies saw a 2% gain to its EPS and estimates the asset will report an EBITA margin of around 16% this year - well below the UK & ROW divisions 21% EBITA margin and thus should be slightly dilutive.

Jefferies anticipates a pre-tax profit of £4.8m from Rentokil thanks to the outfit's 25% market share in the UK.

For now, the broker chose to keep its 'buy' rating 260p target price on Mitie, as well as its 'hold' rating on Rentokil, unchanged.

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