Rentokil has lifted its revenue forecasts and is expected to squeeze more cost savings from its acquisition of US rival Terminix, which sent shares in the world’s biggest pest control group up more than 10 percent.
The UK company bought Terminix in late 2021 in a $5.4 billion deal to push into the US, the world’s largest pest control market. Rentokil now expects the Terminix deal to generate $200mn in annual cost savings by 2025, up from $150mn.
The $22bn pest control industry has continued to grow despite the pandemic and more recent economic downturns, with expanding middle classes, viruses and diseases brought on by Covid-19 and increased concern about climate change driving the sector.
Rentokil said on Thursday it was lifting its medium-term forecast for organic revenue growth to at least 5 percent from a previous range of between 4 percent and 5 percent.
Barclays analyst Paul Sullivan noted the additional cost savings from Terminix “although not a quantum surprise . . . the timing is earlier than expected and suggests integration is off to a very strong start.”
Shares in Rentokil were up 11 per cent in afternoon trading, giving the company a market value of $17bn.
Applied Value analyst Stephen Rawlinson said “there are limited details around how it [the cost savings] will be achieved, though the company has mentioned reducing the branch network below 400 depots.
The bullish forecasts came as Rentokil reported a 25.6 per cent rise in revenue to £3.71bn last year. Adjusted pre-tax profit rose 28 per cent to £532mn.
Chief executive Andy Ransom said the group’s organic revenue growth of 6.6 per cent last year, which excludes the impact of acquisitions, showed the “resilience of our business model”.
The Rentokil boss pointed to rising costs in the business, saying “overall I would say the inflationary price environment in most of our markets looks like it’s easing”.
Wages are “the biggest part of our cost base”, he said. “We still have several months in which to monitor the markets, see what other companies are doing. . . And then we’ll decide where we’re going to put our coworker wage rate inflation,” he added.
