In charge: Andy Ransom is the chief executive of Rentokil
Rentokil shares slipped on Thursday as investors fretted intense competition with its main US rival could dent hopes of building the world’s largest pest control company.
Revenues jumped by 0.9 per cent to £1.27billion in the first three months of 2024, as ‘continued pricing momentum’ helped boost organic growth by 3.1 per cent.
Rentokil said it delivered a ‘stabilising performance’ in North America, where it derives around 60 per cent of sales, with organic revenue up 1.5 per cent – just shy of forecasts of 2 per cent.
It added that its Terminix integration plan had progressed, following the 2022 US takeover, having completed corporate entity mergers, implemented new combined systems, and facilitated integrated performance management.
But Rentokil shares were down 2.86 per cent or 12.80p to 434.10p on Thursday, having fallen over 27 per cent in the last year.
Analysts at Peel Hunt said: ‘Questions remain about Rentokil’s underperformance against leading competitor Rollins.
‘Rentokil has historically traded on a substantial discount to Rollins, and this has recently widened due to a number of factors, including the increased differential between leverage and [return on capital employed], and the loss of market share to Rollins in North America.’
Mark Crouch, analyst at eToro, added: ‘Following completion of what was a groundbreaking acquisition of US pest control company Terminix in late 2022, Rentokil has since faced challenges managing the transition efficiently, and on closer inspection, the business has struggled with marketing, new business sales, staff turnover and integration in the US, all of which have fallen well short of expectations.’
But Crouch said Rentokil management’s ‘past performance’ will give investors confidence that the firm ‘will deliver on its potential and live up to its title as the world’s largest pest control company’.
Similarly, Peel Hunt said ‘near-term risks are compensated by the longer-term opportunities’, and retained its hold rating on Rentokil shares with a target price of 454p.
Revenue: Rentokil saw its revenue rise by 0.9% to £1.27bn in the first three months of 2024
Elsewhere, Europe and Latin America saw growth of 6.2 per cent during the quarter, while the UK and sub-Saharan Africa achieved 4.1 per cent growth each.
Asia, the Middle East and North Africa showed growth of 4.3 per cent, while the Pacific region was up 7.3 per cent.
Organic revenue growth was seen across all categories, with pest control up 2.7 per cent, hygiene and wellbeing up 3.8 per cent, and France workwear up by 7.7 per cent.
The group said its bolt-on merger and acquisition programme continued to create value, with eight deals in the period contributing annualised revenue of £45million.
This included the acquisition of HiCare Services, the second biggest pest control company in India.
Looking ahead, Rentokil said it remained on track to meet expectations for the full 2024 financial year, including 2 per cent to 4 per cent organic revenue growth in North America, accompanied by modest margin progression, weighted towards the second half.
Andy Ransom, Rentokil’s chief executive, said: ‘We have made a positive overall start to 2024. The Group has performed well and our Right Way 2 plan has delivered a stabilising performance in North America.
‘As the year proceeds, we look forward to continued progress, driven by our focus on North America growth and the Terminix integration plan, which is in the advanced stages of preparation for the first full branch integrations commencing mid-year.’
This post first appeared on Dailymail.co.uk
