Shares in pest-control firm Rentokil Initial (RTO) hit their highest level since before the dot.com boom 20 years ago after the company said first half organic revenue grew at its fastest rate in over a decade, beating its medium-term target.
That sparked a fresh wave of investor buying, sending the share price up more than 5% to 433p. The stock has only once before been higher, hitting 473.25p on 15 January 1999.
ANOTHER ROBUST PERFORMANCE
Turnover in the six months to 30 June increased by 4.2% on a like for like basis to £1.29bn against the firm’s target of 3% to 4% per year while acquisitions contributed another 4.6% bringing total sales growth to 8.8% over the period.
Revenue growth was strongest in Pest Control, which generates around two thirds of income, up 11.4% in total and 4.8% on a like for like basis thanks to new products and services.
Hygiene, which generates just under a quarter of group income, increased revenues by 6.5% in total and 4.3% on a like for like basis driven by strong demand in the UK, Europe and Asia.
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By region North America continues to be the biggest contributor, bringing in over a third of revenues, with growth driven by pest control thanks to steady underlying growth plus acquisitions.
Rentokil bought seven pest control companies in North America in the first half including one ranked in the top 40 in the US, and is well on its way towards its target of generating $1.5bn of revenues by the end of 2020.
Europe brought in around a quarter of revenues thanks to strong performances in Germany and Southern Europe and a small improvement in France and the Benelux countries.
UK and Rest of the World contributed around 20% of revenues with good growth in UK pest control and hygiene offset by continued weakness in the property care business. Rest of the World showed strong contributions from the Nordic region, Africa, the Middle East and Latin America.
PROFITS AND CASH FLOW QUALITY
As well as beating its revenue growth target Rentokil over-delivered on its operating profit growth in the first half (up 11.6% against a medium-term goal of 10%) and free cash flow conversion (93% against a target of 90%).
However, with the shares now trading on 35 times current year earnings it will need to maintain this momentum in the second half if it doesn't want to risk losing its premium rating.
