Rightmove (LSE:RMV) and Rentokil (LSE:RTO) are two FTSE 100 shares that attracted a lot of interest on 11 September. That’s because the former rejected a takeover approach and the latter released a disappointing trading update.
But should I add either of them to my portfolio?
Hot property
On 2 September, Rightmove announced that it had received an unexpected takeover approach from REA Group, an Australian company that operates a number of real estate websites around the world.
In my opinion — although a potential acquisition makes sense from a strategic point of view — they’ve offered too much. If I was a shareholder, I’d be screaming from the rooftops for the directors to agree to the deal. Instead, they’ve rejected the bid.
For the year ending 31 December 2024 (FY24), analysts are expecting basic earnings per share (EPS) of 25.98p. The offer values the company at 698p — implying a forward price-to-earnings ratio of 26.5. To put this in perspective, the Magnificent Seven are currently trading on a multiple of 23.9.
And I think there’s little on the company’s balance sheet to justify this valuation. At 30 June 2024, it had net assets of £66m, giving an eye-watering price-to-book ratio of 80.
But when the takeover approach was rejected, Rightmove’s share price didn’t move. This suggests shareholders are expecting an improved offer to be made by REA (or someone else). Collectively, investors clearly believe the company’s worth at least £5.3bn, its current market cap.
That could be due to the fact that it has an 86% market share of a “selection of the top property portals”.
It should also benefit from the anticipated improvement in the UK property market if (as expected) interest rates continue to be cut.
Also, the government’s emphasis on housebuilding to help boost economic growth should add to the property portal’s bottom line.
But despite these positives, its current valuation looks on the high side to me. I don’t see much further upside, therefore I wouldn’t want to invest.
Bad news
Rentokil’s shares tanked nearly 20% after the pest control and hygiene group issued a profits warning after reporting disappointing sales in North America. The territory accounts for approximately 60% of revenue so any problems in the region are going to have a disproportionate impact.
On the day, the stock hit a 52-week low. It’s not been a good year for the company’s shareholders. Its shares have fallen 34% since September 2023.
But this could be an opportunity to get a quality stock at a knock-down price.
Through a combination of acquisitions and organic growth, Rentokil has seen its revenue increase from £2.7bn in 2019, to £5.4bn in 2023. During this period, its adjusted EPS has risen by an impressive 61%.
But I don’t want to buy, principally because I still think there’s some uncertainty over its business in America. It doesn’t sound as though things have improved. The company said “the trading performance in July and August was lower than anticipated”.
This makes me nervous.
Also, Rentokil’s dividend is on the mean side. It increased its interim payout by an impressive 14.9%, compared to FY23. But even if it did this with its final dividend, it would still only be yielding 2.6%.
This isn’t enough to compensate me for the risk that I’d be taking by investing now.
The post Rightmove and Rentokil are 2 FTSE 100 shares in the news. Should I buy? appeared first on The Motley Fool UK.
Like buying £1 for 31p
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See the full investment case
More reading
What does a rejected takeover mean for the Rightmove share price?
This FTSE 100 stock’s down 18% today! Could I snap up a bargain?
As the Rentokil share price crashes 20%, it’s too cheap for me to ignore
A top broker has named these 2 UK shares as buys
The Rightmove share price just soared 24%! What’s the best move now?
James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove Plc. 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.
