Almost one million violent crimes are committed in the UK every year. Many occur at home, although incidents frequently break out in bars, clubs and street corners. Once the police have been called and the forensic teams have done their job, crime scenes need to be cleaned and decontaminated. The work can be complicated, difficult and traumatic, but it has to be done.
react group specializes in emergency cleaning of all shades. The shares are just 1.25p and should come a long way from turnaround veteran Mark Braund.
React does the kind of work no one likes to think about: cleaning up after accidents, from freeway crashes to prison fights. When squatters are evicted from their homes, React teams are tasked with removing dirty needles, dirty upholstery, and damaged fixtures, scrubbing all surfaces along the way.
When cities flood and sewage leaks, React is turned to to keep properties safe and dry. When deaths occur on railways (suicides, staff, stray deer), React is tasked with cleaning up the tracks and trains, a gruesome task.
Cleaners also come to the scene when dangerous chemicals or germs escape into the atmosphere, a service that was in high demand during the Covid pandemic.
Messy business: React Group rushes to emergency scenes to clean up after violent crimes and accidents
This job is not for the faint-hearted. Employees must be properly trained, mistakes can be dangerous and fast, and effective service is paramount. The work is also lucrative and few companies offer it on a large scale. But emergency cleanup is unpredictable by nature and when Braund began advising React in 2019, the group was struggling, amid persistent losses and a share price of less than 0.5p.
As Braund got to work, React’s fortunes slowly began to improve, and in December 2020, he was named president. The company has changed substantially since then, winning major contracts and making two key acquisitions, Fidelis in 2021 and LaddersFree a year later.
Fidelis specializes in deep cleaning, from hotels and restaurants to schools and hospitals. Very different from everyday cleaning tasks, this type of service is non-discretionary and cleaners should be carefully vetted, particularly those working in education and healthcare. Contracts also tend to be long, from three to seven years, giving React the predictable revenue it was sorely missing before.
LaddersFree also benefits from long-term contracts. The company is one of the largest window cleaning companies in the country and, as the name suggests, does not use ladders. Instead, operators use deionized water and long poles that allow them to clean buildings up to six stories high without the effort and expense of ladders or other equipment.
Its clients include Lidl, Next and Costa Coffee and business is going well.
The results for 2023, presented last week, were impressive. Revenue rose 43 per cent year-on-year to £19.6m, while profits soared from £700,000 to £1.8m. These figures are not a glimmer of light either. In the last four years, sales have increased more than six-fold and the group has gone from loss to profit, backed by a healthy bank balance, with more than £2 million in cash on hand.
Braund also has high hopes for the future, aiming to grow revenue to £50m in the next three to five years, with a parallel rise in profits. Success should come from a combination of small acquisitions and organic growth. Specialty cleaning is a fragmented market, populated by hundreds of small businesses operating in your local area. This provides abundant profits for Braund and his team, especially since React has developed a reputation for taking care of the companies it buys.
Large companies often prefer to work with suppliers who can meet all of their specialized cleaning needs, so acquisitions should prove fruitful. There are also many opportunities for cross-selling, cleaning properties inside and out for clients.
LaddersFree should also benefit from plans to make the business more agile and digital, reducing paperwork and improving communication between window cleaners and their customers.
Brokers are bullish on React and expect continued growth over the next few years. Braund also inspires confidence. Having worked at IBM, he has spent the last two decades as an entrepreneur, founding a successful recruiting firm with his wife and leading several turnarounds.
Midas Verdict: React Group is a small company in a big market, so there is a lot of room to grow. Braund and his team have shown they can deliver results, they have attracted the support of big investors and the shares, at 1.25p, should prove rewarding.
Traded in: AIM Heart: REEAT Contact: reactsc.co.uk or 01283 550503
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