Rentokil Initial plc, a leading provider of pest control and hygiene services globally has released a trading update covering the third quarter of the year. The group enjoyed a solid performance, maintaining growth rates at a broadly similar pace to the previous two quarters.
Overall revenues grew by 10.4%, add in the impact of currencies and this jumps to 18.9% growth. Growth was driven by the Hygiene division, which delivered organic growth of 7.3%, compared to 3.5% in the key US Pest Control division.
Early in October, Rentokil completed the acquisition of Terminix in the US, to create the largest operator in US pest control. Rentokil reported that growth in Terminix’s ongoing operations reached its highest level since 2014 in Q3.
Rentokil Initial’s shares dipped almost 3% in early trading.
Steve Clayton, fund manager at HL Select:
“Rentokil have delivered a strong performance, as expected. The news from Terminix looks encouraging, although some may be a little surprised by the higher interest costs the group is now predicting related to the financing of the deal. There’s no comment on margins in the statement, which is disappointing. Some analysts have argued that margins were flattered in the pandemic by one-off disinfection revenues and that lower margins lie ahead as these revenues fade away. It would have been good to see that argument settled once and for all. At least the remaining level of disinfection revenues is now so small for there to be nothing further to argue about once the full year figures come out in 2023.
Overall, it’s a decent statement. The group now have a commanding position in the world’s largest pest control market and are making good progress delivering the synergies that combining the two depot networks can provide. The group’s debt has fixed rates, so the group are insulated from rising borrowing costs. The US Pest Control division faced tough comparatives against a prior year when growth was almost 10%. That comparative challenge should ease from here, leaving Rentokil capable of reporting strong organic growth with synergy benefits on top, at a time when most stocks will be struggling against economic headwinds.”
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