Shares in hygiene and pest control firm Rentokil (RTO) climbed 2.6% to 530p against the backdrop of a weak UK market, after it posted a positive third quarter trading update showing ongoing revenues up almost 10% during the period.

The group performed well in the three months to September with ongoing sales up 9.8% thanks to 'exceptional growth' in its Hygiene division from continued high demand for disinfection services, and a return to growth for the Pest Control division.

CLEANING UP

Hygiene revenues grew a remarkable 53.3% in the third quarter compared with already-impressive growth of 16.3% in the second quarter, as business customers were able to re-open their premises and the firm was able to resume washroom services.

By the end of the quarter just 4% of the firm’s Hygiene customer premises were still shut, primarily in the hotel, restaurant and catering (HORECA) sector, compared with 22% at the end of April.

The Pest Control business turned from a decline of 5.9% in the second quarter to a rise of 1.3% in the third quarter, helped by continued demand for residential services, while the commercial side was still impacted to a degree by the closure of client premises.

The smaller Protect & Enhance division registered an 11.7% fall in turnover, although this was a marked improvement on the 27.3% decline of the second quarter.

RISING CONFIDENCE

In a sign of increased confidence, the firm resumed its merger and acquisition (M&A) programme during the quarter, completing six small bolt-on deals, mostly in Pest Control in the Americas and the Pacific region.

The company said it was ‘confident’ in its target spend of at least £100m in the second half, meaning there is likely to be a steady flow of acquisitions during the current quarter.

While he admitted it was ‘impossible to predict the future development of Covid’, as well as the potential impact on Rentokil’s customers and the extent to which demand for disinfection services might normalise post-pandemic, chief executive Andy Ransom said he was ‘hopeful that the momentum in our core customer base will be maintained through the fourth quarter’, which together with the firm’s performance in Q3 meant the outcome for the full year should be ‘at least in line with expectations’.

With reference to dividends, which were suspended in April, the group repeated the guidance it gave in July that it would announce the 2020 pay-out when it releases its full year results next February.

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Issue Date: 22 Oct 2020