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Rentokil Initial sees Pest Control return to organic growth as it prepares for disinfection activities to taper off

Recovery in its core businesses, particularly Pest Control, has demonstrated growing momentum over the first quarter

Rentokil Initial -

Rentokil Initial PLC (LON:RTO) saw its Pest Control division return to organic growth in the first quarter.

Ongoing revenue in the first three months of 2021 was up 12.8%, or 15.4% on a constant exchange rates (CER) basis, from a year earlier at £711.3mln.

Of the 15.4% growth, 9.4% percentage points came from organic growth while six points came from acquired businesses.

The Hygiene division, which has been benefiting from the changed environment during the Coronavirus pandemic, saw a 48.1% year-on-year increase in revenue (excluding businesses acquired during the last year) while Pest Control’s revenue growth was 10.5%, with organic growth of 1.2%.

Recovery in its core businesses, particularly Pest Control, has demonstrated growing momentum over the quarter, and the group exited March 2021 with group organic growth of 2.5% (excluding disinfection) and organic growth in Pest Control of 6.3%.

The FTSE 100 firm said it continues to expect 2021 to be a year of transition with its core services building momentum and with disinfection volumes and prices reducing materially from the start of the second quarter and leading to a significant unwind as the year progresses.

"I am very pleased with the performance our colleagues delivered in Q1, in particular the growth momentum achieved by our Pest Control business, and we remain confident in delivering further operational and financial progress in 2021,” said Andy Ransom, Rentokil’s chief executive.

Peel Hunt left its forecasts unchanged and reiterated its “add” recommendation.

The broker noted that the shares trade on 31.7 times forecast earnings per share (EPS) for this year and 28.4 times next year’s EPS.

“US pure-play pest control peers Rollins and Terminix trade on 52.0x and 31.1x December 2022E EPS respectively (North American Pest Control accounts for 36% of Rentokil’s revenues),” Peel Hunt noted.

Rentokil shares were 1.8% softer at 503p in lunchtime trading.

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