18th Apr 2024 11:19
(Alliance News) - Shares in Rentokil Initial PLC slipped on Thursday after weaker-than-expected trading in North America took the shine off what the firm termed a "positive start" to 2024.
Shares in Rentokil were down 2.6% to 435.25 pence each in London late Thursday morning. It was the worst performing stock in the broader FTSE 100 index, which was up 0.3%.
In a first quarter trading update, Rentokil maintained its yearly outlook and pointed to a "stabilising performance" in the key North America region.
The Crawley, England-based pest control and hygiene firm said revenue rose 0.9% to GBP1.27 billion in the first quarter of the year from GBP1.26 billion a year before. It grew 4.9% at constant exchange rates. Rentokil noted 3.1 percentage points of that came from organic revenue growth, hailing "continued pricing momentum".
In North America, Rentokil reported just 1.5% organic revenue growth.
"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. With the key trading period for the business ahead of us, we remain confident in delivering on our guidance of 2% to 4% organic revenue growth in the region," Chief Executive Andy Ransom said.
Organic revenue rose across all categories in the three months that ended March 31, climbing 2.7% in Pest Control, 3.8% in Hygiene & Wellbeing, and 7.7% in the France Workwear arm.
Rentokil said the integration of bumper acquisition Terminix saw "further progress towards full branch integration starting mid-year."
Rentokil completed its acquisition of US pest control business Terminix for USD6.7 billion in October 2022.
The North American performance caught the eye of analysts.
"North America Pest growth at 1.5% is slightly disappointing against 2% target, with only a slight sequential improvement despite what we saw as supportive weather," analysts at Jefferies said.
UBS agreed, noting the growth in North America was slightly below guidance, although it pointed out management still expects to hit its full-year target of 2% to 4% annual organic growth in the region.
The broker explained the seasonally busier part of the year is yet to come, and that 'right way 2' initiatives are under way - a new Terminix advertising campaign launched late in the first quarter.
Steve Clayton, head of equity funds at Hargreaves Lansdown, felt there "isn't really any new good news in this statement, but nor is there any new bad news."
Although he did think "we could see some weakness on the details within the statement".
Clayton said momentum in the US Pest business only really picked up around the quarter end when the new Terminix marketing campaign kicked off.
Colleague retention in the division is improving, but not "dramatically".
What Rentokil "have not been able to show so far is that the US Pest division can motor along with the wider strength of the US economy, let alone outpace it as the hoped-for benefits of the huge Terminix deal are extracted," he remarked.
"So, in that sense, it is still all to play for," he added.
"Terminix gave them a step-change in presence in the US, but a complex branch integration of the two networks remains ongoing. If the group execute its plans well, then the opportunities look substantial, but the market is likely to remain in 'show me' mode for a while longer, until Rentokil can really demonstrate rising momentum," he believes.
Beyond the US, trading looks quite encouraging, Clayton noted, with bolt-on mergers and acquisitions continuing to be accretive to growth. These included HiCare Pest Services, India's second largest operator.
"On the face of it, Pest Control and Hygiene services in India is quite an opportunity and acquiring the number two operator in this highly fragmented sector looks like an interesting move," he added.
By Jeremy Cutler, Alliance News reporter
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