Rollins falls 3% as Spruce Point goes short on cash flow worries (updated)
04/10/2023 14:51
(Updates shares, adds details from report, background)
Oct 4 (Reuters) - Spruce Point Capital Management said
on Wednesday it was short on Rollins ROL.N on concerns over
its cash flow and leveraged acquisitions, sending the
pest-control company's shares down about 3% in early trading.
The short-seller warned that shares in Rollins, which owns
pest-control brand Orkin, could drop 30%-40%.
The company, which had a market capitalization of $17.9
billion as of Tuesday, has relied on acquisitions to consolidate
its presence in a traditionally high-margin business.
Spruce Capital said in its report that Rollins' core margins
were facing pressure due to increasing labor and fleet costs and
"underwhelming" growth in technology development.
It added that Rollins faced increasing competition from
rivals that provide lawn and gutter cleaning services along with
pest control, and said that it could mean an annual churn or
customer loss of 25% for the company.
Spruce Capital said that Rollins acquisition of door-to-door
pest control service company Fox Pest "looks troubled" due to
Fox's decelerating revenue.
Rollins did not immediately respond to a Reuters request for
comment.
The downside risk to Rollins' valuation is in light of its
recent stock sales, including a secondary stock offering of 38.7
million shares from the company's largest shareholder Lor Inc at
a discount of 8%, Spruce Capital added.
The short-seller said that the Rollins family and top
management were selling stock in a bid to raise capital as
insurance against forthcoming financial troubles.
(Reporting by Juveria Tabassum
Editing by Vinay Dwivedi)
((Juveria.Tabassum@thomsonreuters.com;))