Rentokil Initial rises on upbeat trading

Pest control and workwear company Rentokil Initial has risen nearly 2% in a nervous market after a positive trading update.

The company has climbed 2.2p to 136.5p as it reported a 2.2% increase in first quarter revenue to £416m, with strong growth in Britain, north American and Latin America.

It bought six businesses during the quarter, all in pest control, with combined revenues of £50m and hopes to spend around £50m on further acquisitions this year.

The company said it was on track to meet full year forecasts of around £194m annual profit. With 90% of its sales coming from overseas markets, it said it expected a hit of around £14m due to a weaker euro and stronger dollar.

Chief executive Andy Ransom told Reuters he was upbeat about the business, despite the current uncertainty about next week’s UK election. He said:

The rats don’t notice the election. We are not paying too much attention to it either.

Analyst Christopher Bamberry at Peel Hunt issued a hold recommendation, saying:

There has been an acceleration in organic revenue growth to 2.5% in the first quarter of 2015. Rentokil clearly is on the path to becoming a better business. However, in our opinion, this already is incorporated into the share price and the valuation (16 times 2015 estimated earnings per share) assumes that Rentokil can successfully deliver accelerated organic revenue growth on a sustained basis and that it can successfully execute its M&A plans for a number of years to come.