ii view: Rentokil Initial reports strong results

Pest control and hygiene services company Rentokil Initial benefits from further bolt-on acquisitions.

Half-year results

• Revenue up 10.4% to £1.29 billion
• Adjusted operating profit up 13% to £152.1 million
• Dividend payment up 15.2% to 1.51p per share
• Guidance for the full year remains unchanged

Chief executive Andy Ransom said:

"The business has performed very well in the first six months with strong Organic growth of 4.2%, driven by the expertise of our people, our continued leadership in technology and innovation, and further execution of high-quality acquisitions in Growth and Emerging markets."

ii round-up:

Rentokil Initial (LSE:RTO) is a provider of Pest Control and Hygiene services. Pest control at around three-fifths accounts for the lion’s share of sales. The group operates in over 70 countries with North America its biggest market. 

A focus on innovation and digital technology is helping to drive growth for the pest business. Acquisitions of CWS Italy and Cannon Hygiene have helped add sparkle to its hygiene division. 

Acquisitions across the company are generating an important contribution. A total of 47 businesses were acquired in 2018, 42 acquisitions in pest control. 

Rentokil comfortably beat analyst expectations in these half year results. Organic Revenue growth of 4.2% equalled its highest growth rate in the first half for over a decade, despite wet weather in North America in the second quarter. 

The share price rose by over 4% in late afternoon UK stock market trading. 

ii view:

Growth via bolt-on acquisitions and the company’s exposure to emerging markets both offer reasons for positivity. Half year results again saw both supporting performance.  

From an investor’s prospective, a seven-year record of consecutive dividend increases is not to be ignored. Group strategy is also, for time being, clearly aimed in the right direction. However, sat on a prospective dividend yield of just over 1% and with a current forward price earnings (PE) ratio which is comfortably above the ten-year average, we believe, some caution is warranted. 

Positives: 

• A strategy of bolt-on acquisitions
• Diversity in both business type and geographical location

Negatives:

• The weather can influence performance
• Currency movements can hinder

The average rating of stock market analysts:

Buy