Rentokil’s Share Price Slumps 14% As North American Market Cools

Pest control expert Rentokil Initial’s share price collapsed on Thursday as it warned of toughening trading conditions in North America.

At 512p per share, the FTSE 100 share was last dealing 13.8% lower.

Following a flurry of acquisitions in 2022, revenues at the firm rocketed 53.3% during the three months to September, to £1.4 billion. On an organic basis sales were up a more modest 4.3% year on year.

Organic revenues rose just 2.2% in Rentokil’s critical North American marketplace. The company sourced more than 60% of total revenues from the region in the first half of 2023.

American Blues

Its Pest Control division in the region grew organic sales by 2.3%, but corresponding turnover at its US products wholesale distribution business dropped 2.5% due to what the firm described as “lower demand for chemical products for use in pest control and in turf and ornamental end markets.”

Rentokil noted that “while customer retention rates remained resilient, new residential customer acquisition was challenged by the macroeconomic backdrop and a softer consumer demand environment.”

As a consequence, the exterminator said that it expects full-year performance at group level to be “marginally” below what it had previously forecast. Adjusted operating margin in the territory is now tipped to come in between 18.5% and 19%, down from a prior prediction of 19.5%.

The company’s landmark acquisition of rival Terminix last October continues to pay off, Rentokil said. It advised that it remains on course to reach $60 million of pre-tax synergies.

Strength In Other Regions

Elsewhere, Rentokil said it had witnessed a “sustained strong performance” in its other geographies in the last quarter.

Organic sales in its European market (which includes Latin America) rose 9.5% year on year. Combined revenues across Asia and its Middle East, North Africa and Turkey (MENAT) territory were up 8.9%, while in the Pacific the top line grew 7.6%

In the UK and Sub-Saharan Africa organic sales rose 5.2%.

Rentokil said that “overall, we expect to achieve good growth in the group in the remainder of 2023.” It predicted that full-year performance at group level should come in “broadly in line” with expectations, and that its net debt to EBITDA ratio should fall to three times by the close of the year.

“Good Overall Performance”

Chief executive Andy Ransom said that Rentokil had delivered “a good overall performance in the third quarter,” noting that “we have a proven, effective strategy to deliver organic growth, focused on strong customer relationships and service quality.”

He said that “the portfolio effect of our global business operating in multiple markets enables us to weather regional headwinds.” Ransom added that “the strong fundamentals of our operations are further enhanced by our value-creating [mergers and acquisitions] programme, led by the integration of Terminix.”

“Fruitful Results”

Analyst Neil Shah of Edison Group said that Rentokil’s update showed “a solid overall performance” in the last quarter, adding that “the company’s strategic pricing adjustments to counter rising input costs have yielded fruitful results.”

He said that “while there is some market uncertainty in North America, the company’s focus on managing inflationary pressures and its strong cash generation support its financial stability and debt reduction goals.”

Source: https://www.forbes.com/sites/roystonwild/2023/10/19/rentokils-share-price-slumps-14-as-north-american-market-cools/