Rentokil Initial has released a trading update covering the three months to end-March. The group’s sales grew by 1.8% to £722m. Strip out the extraordinary contribution from Covid-related disinfection revenues in the prior year and the underlying growth rate was 12.3%. The group was able to recover all of its input cost inflation by raising its own prices, achieving organic revenue growth of 8.0% in the process. The large Terminix acquisition is proceeding toward completion as expected and Rentokil say the business is performing well, in line with managements’ expectations.
The shares opened almost 2% higher on the news.
Commenting on the statement, Steve Clayton, fund manager of the HL Select UK Growth Shares fund, which holds a 3.1% position in Rentokil Initial said:
“This statement shows why Rentokil deserves a premium rating in the stock market. So many other companies are struggling with the impact of inflationary pressures, but Rentokil’s customers value the services they provide so highly that the group can raise its own prices to cover its higher input costs, preserving its own margins in the process.
Organic growth looks to have been robust across the group, especially so in the Hygiene & Wellbeing division, where it reached double digit levels. The group does face a big headwind at the top line level, because last year it earned £85m from disinfection services which will largely fall away this year as the magnitude of the pandemic eases. Even so, the group expects to grow its revenues this year, and as we have seen this quarter, stripping out the disinfection impact reveals a very strong underlying pace of growth.
There will always be rats and cockroaches, termites and weevils. But our misfortune is Rentokil’s growth driver. Hygiene regulations never ease, and as nations grow, the pests do too. So Rentokil is a business with the odds stacked in its favour. Businesses with that assured underlying growth opportunity are rare; businesses with that opportunity and whose revenues recur as reliably as Rentokil’s do are even rarer.”
