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Categorized | Equities

Rentokil shares rise on stronger profits

Posted on February 27, 2015

Rentokil pest technician Glyn Hughes removes equipment from his van©Bloomberg

Rentokil Initial shares rose to a four-and-a-half-year high on Friday as strong demand for its pest control services combined with cost measures to drive pre-tax profit up 58.4 per cent.

The company unveiled a series of innovative products, including a trap for small vertebrates that sends a text when it catches a creature and an infrared-activated poison dispenser as it seeks to stimulate further growth in its mature markets, where competition is intense.

    Shares in Rentokil jumped 4.4 per cent to 135.3p in London.

    “I feel like we’ve had a pretty good year all in all,” said Andy Ransom, chief executive.

    The company is looking to expand in emerging markets where warm, humid weather is conducive to rapid rodent breeding and termite outbreaks.

    The sector has been boosted by strong growth in global bedbug outbreaks, as a result of warmer weather and rising global travel.

    The FTSE 250 company is targeting Latin America, where revenue jumped 308 per cent, and Asia, with revenue up 29.1 per cent in India, China and Vietnam combined. Mr Ransom said these regions have large pest populations but limited extermination services, providing ample growth potential.

    The company accelerated its merger and acquisition programme, in which it acquired 30 businesses with combined revenues of £66m in 2014, including purchases in Chile, Colombia, India, Mozambique, Korea, Brazil, Brunei, and Singapore.

    Revenue climbed 2.7 per cent to £1.74bn and the company slashed net debt to £260m, a 15-year low, as its costly restructuring continues at a more muted pace.

    In North America, Rentokil increased sales by 6.6 per cent and hopes to fatten sales further through the launch of its “CageConnect” product, a trap for small vertebrates such as skunks, squirrels and raccoons that alerts the operator by SMS when triggered.

    The hygiene division performed less well, with operating profit down 11 per cent to £93.9m.

    Trade in Europe proved challenging, with operating profit down 8.7 per cent, although Mr Ransom said poor growth in the eurozone was not to blame, and the infrared mouse traps should help growth recover when launched.

    ”Rats don’t read the Financial Times . . . If you’ve ever had a rat running around your kitchen you don’t say, ‘let’s wait until the economy picks up’. It’s a very defensive industry, a very reactive industry,” he said.

    Robert Plant, analyst at Morgan Stanley, highlighted that beneath the acquisitions, organic growth was “fairly low compared to other parts of the sector” at 1.2 per cent in 2014.

    “Long term we remain concerned that the core businesses operate in mature markets whose margins may be eroded by greater competition,” he said.