Rentokil Initial shares jump as full-year targets maintained

Shares in Rentokil Initial surged on Thursday after the pest control services group reassured investors by holding on to full-year guidance following two profit warnings earlier in the year, as it reported a steady third quarter with revenues unchanged.

Revenues in the three months to 30 September were flat on last year at £1.38bn, but would have been 3.6% higher at constant exchange rates.

On an organic basis, the top line improved by 2.6%, as strong performances in Europe (+4.7%), the UK and Sub-Saharan Africa (+4.2%) and Asia and MENAT (+6.5%) offset milder growth in North America (+1.4%) after a subdued summer.

The company said it still expects North American organic revenues to grow by just 1% in the second half, as it reiterated its target for adjusted profit before tax and amortisation £700m. This would represent a £66m decline from last year, and down from previous guidance of £750m.

The stock was up 9.1% at 372.19p by midday in London.

Commenting on the North American market, the company said: "After disappointing inbound digital lead flow in July and August, lead volume markedly improved in the second half of September. This was offset throughout Q3 by a slightly lower sales close rate and average dollar value for these leads."

The company said that actions in North America to increase organic growth and rebalance the cost base have been strengthened since the September trading update.

"In North America, we recognise the business has underperformed and we are focused on delivering the operational improvements required. We are expanding our initiatives to increase organic growth and we are taking action to mitigate cost overruns," said chief executive Andy Ransom.

Commenting on the statement, Russ Mould, investment director at AJ Bell, said while the share-price bounce will be "sweet relief for shareholders who have endured a tough period", actions to mitigate the weak performance in North America are only "baby steps".

"With a representative from Nelson Peltz’s Trian vehicle on the board, after the activist snapped up a stake in the company, pressure on its management is likely to remain acute. Chief executive Andy Ransom needs to deliver after more than a decade in situ," Mould said.