Rentokil Initial’s biggest acquisition to date has begun to pay dividends for the company, once known as the “royal rat catcher”.
The FTSE 100 group in pest control reported a 44 percent increase in profits before tax in 2023, to £766 millions, and revenues increased by a similar percentage, to £5.3 billion. This was all due to a contribution of the first full year from Terminix, which it purchased for $6.7 billion.
Rentokil’s performance in Terminix has been a concern in recent months, especially after the warning that was issued in the fall stating that the United States growth rate had slowed down as consumers prioritized other spending priorities than pest control. Rentokil shares rose sharply after news of a new plan by Rentokil to fix Terminix. This was coupled with reassuringly positive reports from other markets, and a 15% increase in dividends to 8.68p. In afternoon trading, the stock rose 80 3/4p or 18.8% to 509 1/4p.
The company’s North America business grew at a slower rate than expected (3.1%), as it failed to gain as many customers as hoped for and lost staff as a result of its acquisition.
Andy Ransom, Rentokil’s 60-year-old chief executive who has been in his position for a long time, restructured the management team of North America at the beginning of the year. He said, “We are taking action to reinvigorate the organic growth of the North American business.” We have a comprehensive and clear road map, with the right team to implement it.
Rentokil has said that it will make more savings by integrating the Terminix business but acknowledged that the plan will take longer than originally thought. The completion date is now 2026.
Analysts are concerned that Rentokil is not performing as well Rollins, their American competitor. Rentokil is now doing more than three-fifths of its business within North America after the acquisition of Terminix at a premium.
Rentokil also reported growth in other regions. Rentokil reported strong growth in other regions. Earnings were up by 12 percent in Europe and Latin America, 4 percent for Asia, Middle East and North Africa and nearly 20 percent for its Pacific region. The profits of British and sub-Saharan companies in Africa were flat despite higher revenues.
Ransom stated that despite the weaker growth in North America organic revenue growth of 4.9 percent and margins of 16.6 percent [were achieved throughout the group]. We have continued to reap the benefits of our global, diversified footprint.
Stephen Rawlinson is an independent analyst in the sector. He said that Rentokil had answered some of its critics, but not fully. The stock will need a little more motivation and evidence of growth to return to 600p. However, investors will feel reassured with the results and 15 percent increase in dividend.