Shares in Rentokil Initial PLC (LSE:RTO) were up almost 11% on Thursday after the pest control group reaffirmed its full-year outlook and pointed to improving trends in its key North American market.
First-half revenues rose 3.1% to $3.36 billion, though adjusted profit before tax slipped 8.7% to $418 million, with margins narrowing to 15.2%.
Pest control, which contributed 79% of group revenue in the prior year, delivered 1.8% organic growth in the first half, improving from 1.7% in the first quarter.
In North America, which accounted for 58% of 2024 revenue, organic growth was 1.6%, up from 0.5% in the previous quarter. North American pest control services returned to growth, with 0.3% organic growth after a 0.2% decline in Q1.
Analyst Christopher Bamberry at Peel Hunt noted encouraging signs from Rentokil’s new satellite branches, with 100 now in operation and 150 targeted by year-end.
Company management also reported improved lead flow in residential and termite services, up 6.6% in June – the first monthly increase this year – and positive early results from its new door-to-door pilot launched in the second quarter.
“Expectations of the circa $100 million cost reduction opportunity from the integration and attaining margin in North America above 20% post-2026 remain unchanged, but refined timelines may mean that not all branches are fully integrated by that time,” Bamberry observed.
Peel Hunt maintained a ‘hold’ rating on the shares.
Stifel analyst Sam Dindol also reiterated a ‘hold’, stating the results were in line with his expectations and while North America “remains subdued,” he pointed to the improvement in second-quarter organic growth and lead flow as encouraging.
Rentokil plans to resume integration of the Terminix business in the second half, focusing on standalone commercial branches. It will also work to improve lead flow and customer retention in previously migrated branches.
The group continues to target a North America adjusted operating margin above 20% post-2026 but acknowledged that full integration may not be complete by then.
International trading remained steady, with organic growth of 2.7% and broadly stable margins. Current trading is said to be in line with expectations and the group expects to deliver full-year results in line with market forecasts.
With the shares trading on a one-year forward EV/EBITDA multiple of approximately 10.2x, Dindol viewed this as a fair reflection of near-term challenges.
Rentokil maintained its interim dividend at 4.15 cents per share and said it expects to meet market expectations for the full year.
The shares rose 36.4p to 383.6p.