SERV - Servicemaster Global Holdings

[Spillo]

Good day, I am a newbie and interested to know if anyone has had a look at Servicemaster and their thoughts on the stock?

[glorysk87]

Why don't you offer your thoughts/opinion first? And then others can respond with their feedback.

[Spillo]

P/E of 15 times Dec 2017 for business which can compound EPS at >15% over the next 5 years.

the 15% EPS growth can be split as follows (~6% sales, ~4% operating margin accretion~ 3% from financial deleverage and lower interest rate,~2% from stock buybacks).

 

extremely defensive... grew sales and EPS in FY2008 and 2009.

 

highly profitable, capital light (EBITDA margin is ~25% and capex/sales is <5%) 

 

highly cash generative (negative working capital) so FCF > EPS

 

Essentially 2 segments;

 

~60% of business is pest control which is ~4-5% grower through the cycle (of which ~3 is organic and ~bolt on 1.5 acquisitions). (Rollins is closest peer, which trades ~33 times 2017 P/E, albeit lower leverage).... each have around 20% share and are consolidating the sector. Acquisitions are highly profitable because they buy between 1-2 times EV/Sales and incremental margins are 35-40% once they integrate into their network, so effective acquisition multiple is 3-6 times EV/EBITDA, wheras SERV trade on ~11 times (Rollins trades on ~16 times).

 

~35% of business is home warranties, where groath has accelerated to ~10% or so (versus ~5% historically) because they are exploiting online sales. They are ~4 times bigger than nearest competitors so they have (1) network moat, (2) scale negotiating both with contractors and for parts.

 

stock has sold off because they fired the president of the pest business for under performance versus peers..... which is actually a good thing!

 

 

[Guest notorious546]

this spin off could be interesting.