React cleans up after Covid-19

In an exclusive interview with Safestocks, Shaun Doak CEO of AIM minnow React (AIM:REAT) reveals that this specialist cleaning and decontamination company has benefitted from the high demand for its decontamination and infection control services to eliminate the virus responsible for the coronavirus.

Currently, React is carrying out Covid-19 decontamination clean-ups from everything from police vehicles to offices to manufacturing plants. “I can’t give you much detail, because it’s commercially sensitive IP, however the way we carry out our decontaminations is lot more thorough than many of our competitors, that is for sure. We do ‘before’ and ‘after’ testing to ensure we have decontaminated property to a high standard and certify swabbed areas are clear from traces of the virusWe use the correct chemicals and equip our operators beyond the standards required to ensure their health & safety. We set ourselves apart by doing things the right way.”

He continues: “Just to give you a little flavour of that, we do a lot of Covid-19 decontaminations that have already been decontaminated, allegedly, 2-3 days before. But they haven’t been done properly. The ATP-testing we apply hasn’t been done, which we do in order to certify the property as clear.

Not only have its 90 staff been working flat out to meet demand for its specialist decontamination services but he also foresees that this pandemic may alter the mindset of people as to the importance of regular deep cleaning. “We’ve all worked in offices that have never experienced a deep clean but I think that moving forwards things may be very different. I think it has to be.”

“Once lockdown is relaxed I think there will be an increased sensitivity towards hygiene in the workplace.  More specifically, there will likely be pushback from employees that won’t readily wish to go back to their place of work until the premises have been decontaminated. That may not necessarily be a Covid-19 decontamination, it may be just a deep clean. However, any incidents of property being exposed to the virus will be dealt with rapidly until such time that COVID-19 no longer remains a threat. That is certainly some of the information I am receiving from customers out there, anyway.”

Indeed, just as London bus drivers have hit out at lack of protection and are demanding that their buses are properly deep cleaned, it would be surprising if employees (especially unionised ones) across the whole of the UK don’t want to ensure premises are safe before returning to work after the lockdown. Indeed, I believe employers will wish to eliminate the risks to their employees, visitors and the business of repeat infections as a result of contaminated property.

For its part, React provides its employees the best PPE equipment available and certainly to a higher standard than your average deep cleaner, as Doak explains. “When Covid-19 reared its ugly head, people who were working on contract work for us, including  hospital work and rail sector, we went above and  beyond Public Health England and the World Health Organisation requirements to protect our staff. The reason I did that was firstly, I have a background in construction and place a heavy focus on health and safety. Secondly, we are only as good as the staff out there carrying out their job. As a brand we have a strong reputation for the excellent standard of work carried out by our staff. The last thing I wanted to do was to risk exposing them to danger in any shape or form.”

React goes after difficult work with decent margins and therefore its employees are also paid well, which certainly seems fair and makes for a well-motivated workforce. “We pay our specialist operatives well, a lot higher than most would appreciate, but we appreciate what they do is unpleasant stuff that no one else wants to do.

Beyond Covid-19

Doak is at pains to stress that React is not just a provider of Covid-19 decontamination services. “We are not just a Covid-19 clean-up company, we are a specialist deep cleaner. I believe the best out there.”

“We carry out specialist cleaning and decontamination work that other companies just don’t want to, or aren’t qualified to do. Because of that our customers value what we do and pay us appropriately. Likewise, we pay our staff well and appropriate for the specialist work they carry out.”

Thus, it gets involved in everything from deep cleaning within the healthcare sector, hospital trusts, cleaning up after road traffic accidents, picnic sites after a bank holiday, huge fly tips by the side of the road, drug dens knee-deep in needles, flea invested properties as well as train fatality clean ups for the majority of train companies. All of this takes place right across England, Scotland and Wales using its partnership/sub-contractor network.

It is also important to appreciate that the React business is divided into 2 parts: of approximately equal size of revenues; reactive cleaning services – which is supporting the deep cleaning requirements; and regular maintenance services.

What has become clear with the £500k contract in the rail sector that was won in January is that React is now able to leverage relationships that it has built up, to be a one-stop shop for a variety of complex cleaning jobs, a sort of facilities management house for specialist cleaning services. 

I therefore believe that the increase in demand for its services isn’t just a flash in the pan and that it is set to be profitable from here on in — something of a rarity for a growth stock.

This company is flying beneath the radar of most investors, both because of its tiny £3m market cap and the lack of forecasts in the market. That said, it is expected to be profitable at the interims and for the full year. As it said in a Trading Update RNS published on April 6th: “At the start of the financial year, which runs to 30 September 2020, management expectations had been for the business to move into profitability after reporting annual losses for the last four-years.  Recent trading, notably in March, has been ahead of management expectations and as result the Group is likely to have delivered a small operating profit in the six months to 31 March 2020, which puts the Group in a good position to meet or exceed management expectations for the full year.”

Another positive is that aside from CEO Shaun Doak, who appears to be doing a fine job selling the services of the company with some big contract wins recently, there appears to be a surprising amount of in-depth management expertise within this micro-cap. These include a new Financial Director and a new Operations Manager. 

In summary, React is much more than a Covid-19 play and I believe the business will continue to grow profitably. As it does, the share price should appreciate substantially. Indeed, in time, I’d hope to see a dividend.

The writer holds stock in React.

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