RBC Upgrades ServiceMaster Global On Improving Customer Retention, Nomor Acquisition

Given the investor concern around a slowing global macroenvironment, there is value in ServiceMaster Global Holdings Inc’s SERV business, which has high customer retention rates, contracted revenue and positive pricing in a market that is expected to record mid-single digit growth, according to RBC Capital Markets.

The Analyst

RBC’s Seth Weber upgraded ServiceMaster Global from Sector Perform to Outperform, while raising the price target from $55 to $63.

The Thesis

RBC’s Pest Survey indicates high customer satisfaction with Terminix, which bodes well for continued improvement in ServiceMaster’s customer retention rates, Weber said in the upgrade note.

He added that the survey also indicated “tolerance for price increases and some appetite for adjacent services.”

On September 9, ServiceMaster acquired Nomor Holding, the fourth-largest pest control operator in Europe, for $200 million. The acquisition gives ServiceMaster an entry into the European market and adds a “fast-growing business with margins above Terminix average,” the analyst wrote.

ServiceMaster expects the acquisition to contribute $60 million to revenues and $14 million to EBITDA in fiscal 2020.

Nomor has residential and commercial operations in Sweden and Norway, which are markets that have recorded 5-year compounded average growth rates of 5% and 10%, respectively, Weber mentioned. He further said that Nomor had generated double-digit organic growth over that period.

Price Action

Shares of ServiceMaster Global Holdings were trading higher by 1.93% at $56.56.

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