Interactive Investor

ii view: Rentokil proves pricing power to cover rising costs

21st April 2022 15:41

Keith Bowman from interactive investor

This pest control giant is working on becoming even bigger in North America. Buy, sell, or hold?

First-quarter update to 31 March

  • Total revenue up 12% to £714 million
  • Organic revenue up 8%

Chief executive Andy Ransom said:

"I am very pleased with our performance in Q1, and the continued growth momentum achieved in our core Pest Control and Hygiene & Wellbeing businesses.  We remain confident in delivering further operational and financial progress in 2022.”

ii round-up:

Pest control and hygiene firm Rentokil Initial (LSE:RTO) today pointed to strong momentum from 2021 continuing into the early months of 2022 with progress made across all business categories and regions.

Organic sales, which excludes acquisitions,  for the three months to the end of March rose by 8% when removing pandemic driven demand for disinfection services. That beat City expectations of nearer to 6%. Rising costs had also been entirely recovered by price increases. 

Rentokil shares rose by more than 3% in UK trading, leaving them down by around 9% year-to-date. That’s similar to the fall in the FTSE All World index, although below a 4% gain for the FTSE 100 index. 

Pest control generates just under two-thirds of overall Rentokil sales, hygiene services a further fifth, and its protect and enhance business the balance.

In December, it launched a $6.7 billion bid for US pest control company Terminix Global Holdings (NYSE:TMX). The deal remains on track to complete in the second half of 2022, with a target completion date towards the end of the third quarter. 

Rentokil highlighted that it had no operations or exposure to either Russia or Ukraine and has not been directly impacted by the war.

Outlook comments flagged trading in line with its own expectations. Despite lapping strong pandemic comparatives over the first half, and facing ongoing economic uncertainty, management continues to expect it will deliver good operational and financial progress over the coming year.

Its Annual General Meeting is scheduled for 11 May. 

ii view:

Founded in 1925 and headquartered in Crawley, Rentokil today employs around 46,000 people across more than 80 countries. North America generates its biggest hit of sales at just over two fifths, followed by the UK and Ireland and France at around a tenth each. Since 2016, Rentokil has acquired 228 businesses smaller businesses, mainly in pest control, of which 73 have been in North America. Its planned acquisition of Terminix will give it 56,000 staff serving 4.9 million customers in around 790 global locations.

For investors, its Terminix purchase is still subject to regulatory clearance. Acquisitions always bring some risk, given judgement being made on price, while an estimated price/earnings ratio above the 10-year average also suggests the shares are not obviously cheap. 

On the upside, its ability to pass on rising costs is noteworthy in the current inflationary environment, while its proposed acquisition of Terminix offers cost saving opportunities. In all, and with the consensus analyst estimate of fair value standing at just over 600p, room for longer-term optimism appears to persist.   


  • Diversity in both business type and geographical location
  • Pest Control is a largely non-discretionary and essential service


  • The weather can influence performance
  • Currency movements can impact

The average rating of stock market analysts:


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