Shares in FTSE 100 pest control and hygiene group Rentokil (RTO) dropped as much as 4.5% 489p in early trade despite what appeared to be a strong first quarter update with healthy underlying sales growth.
Revenues for the first three months of 2021 rose 15.4% to £711.3 million thanks to 9.4% organic growth and a 6% contribution from the seven acquisitions made during the quarter.
However, a lack of updated guidance weighed on the shares, sending investors to the sidelines. By late morning the shares were trading down 2.1% at 501p.
WEAK REAL ORGANIC GROWTH
The hygiene business put in a particularly strong performance thanks to £75.7 million of income from one-time disinfection services, although this was lower than the £100 million one-off benefit included in last year’s first quarter.
Excluding disinfection, however, revenues in the hygiene category were down 6.6% on an organic basis reflecting the continued impact of the pandemic on the firm’s regular service provision in a number of countries.
The pest control business posted a 10.5% increase in revenues, although almost all of the gains came from acquisitions including EPS in Florida which was consolidated late last year. Underlying growth was just 1.2%, although the firm said momentum had improved over the quarter.
DOUBLE-EDGED SWORD
While trading conditions in the US were robust, the UK and Rest of World operations remained ‘severely impacted’ by lockdowns throughout the first quarter.
The success of the vaccination programme and the lifting of restrictions in the UK should see trading improve ‘significantly’ over the coming weeks, according to the company, but the recent reintroduction of lockdowns in parts of Europe means the recovery will be lop-sided.
Rentokil faces a tricky situation with respect to the virus. On the one hand, lockdowns to prevent its spread have meant a surge in demand for disinfection, which has boosted sales and earnings, but on the other it needs vaccinations to be rolled out quickly and restrictions to be lifted so that a large proportion of its customers can to get back to work and it can resume ‘normal service’.
UNEVEN RECOVERY
The firm admits ‘the path to normality is predicted to be uneven, reflecting regional and country variances, emergence of new strains and vaccine hesitancy’.
As a result there was no update to half-year or full-year guidance, with chief executive Andy Ransom limiting himself to saying he was ‘confident in delivering further operational and financial progress’ this year.
