Rentokil bounces back after US performance beats expectations

Rentokil Initial, the FTSE 100 pest control group, reported a slightly better than expected performance in its sprawling US operations as it continues the integration of Terminix, the North American business it acquired two years ago in a deal worth £4.5 billion.
There was no further bad news in a third-quarter trading statement that followed a warning of rough times in the US less than a month ago and that sent shares in Rentokil, valued at £9.3 billion on the London Stock Exchange, up sharply.
However the 8.8 per cent rise, 30p better at 371p, made up only a fraction of recent share price losses.
Rentokil shares had plumbed a five-year low this week. Before its September warning, the stock was trading at nearly £5. A year ago the shares were worth more than £6 and the fall from a summer 2023 all-time high is now more than 40 per cent.
Rentokil’s travails have excited the interest of Nelson Peltz, the octogenarian US activist investor whose Trian Partners stakeholding vehicle secured a position on the Rentokil board three weeks ago despite having only built up a 2.26 per cent stake in the company.
Rentokil, which buys and adds on acquisitions at regular intervals, reported that in the third quarter of the year its revenues at constant currency rates grew by 3.6 per cent to £1.44 billion, of which about three quarters of the growth was on a like-for-like basis.
It claimed that the integration of Terminix into its existing businesses “continues to progress well” and said it would be hitting analysts’ reworked revenue and profit targets for the full year.
Andy Ransom, the veteran chief executive of Rentokil, issued a mea culpa. “In North America, we recognise the business has underperformed and we are focused on delivering the operational improvements required,” he said. “We are expanding our initiatives to increase organic growth and we are taking action to mitigate cost overruns.”
Peel Hunt, the stock broker, reckoned Rentokil’s revenues for the year as a whole would increase marginally to £5.39 billion but that adjusted pre-tax profits would fall to £700 million from £766 million.
“In our view, the risk to forecasts remains on the downside, with the heavy-lifting phase of the branch integration of Terminix only recently started and the need to reinvigorate sales growth at the same time,” Christopher Bamberry, an analyst at Peel Hunt, said.
Stephen Rawlinson, an independent analyst of the sector, said the short version of a long trading update could be summed up as Rentokil was “still not getting to where it wants and needs to be”.
Russ Mould, investment director at the share trading platform AJ Bell, said: “Investors will have been reassured by the fact full-year targets remain unchanged and by the action taken to boost organic growth in North America and bring costs back under control.”
He said the trading update represented only “baby steps in the right direction” and with Peltz on the share register and his representative on the board, pressure on Ransom and the management “is likely to remain acute”.