Rentokil share price: 3 things to watch out for in its Q1 results

Rentokil Initial will release its Q1 trading update on Thursday, with investors hoping that the pest controller can maintain the strong growth rates it recorded last year in 2019.

Strong organic growth

At the end of 2018, Rentokil ended the year on a high with ongoing revenue climbing 13.2% and ongoing operating profit up 13.3% compared with the previous year.

A decent portion of that growth was driven organically with the pest control company posting organic revenue growth of 3.7%, which is in line with its medium-term target of between 3% to 4%.

Rentokil’s M&A appetite

The primary driver of Rentokil’s growth and steady share price rise has been its strong acquisition pipeline in 2018, with the company buying 47 businesses in growth and emerging markets with combined annualised revenue of £170 million, for a cash spend of £298.4 million.

Over the course of 2018, Rentokil acquired 42 pest control businesses, four hygiene units and one small ambius asset, with acquisitions continuing to build density across its key markets and deepening its expertise in new and high-growth areas including vector control and fumigation.

‘We have delivered a very strong year of M&A, with a record 47 high-quality acquisitions building scale and density and also enabling us to broaden our expertise in newer growth areas, such as vector control and 2 fumigation,’ Rentokil CEO Andy Ransom said.

‘We have a very active pipeline of high-quality prospects in place, so I am confident of another good year in 2019.’

CMA investigates Rentokil-Mitie merger

Last week, the Competitions and Markets Authority (CMA) threatened to launch an investigation into Rentokil’s merger with pest controller Mitie on the basis that it could lead to ‘a substantial lessening of competition within a market or market in the UK.’

‘The CMA has found that it is unlikely that other companies will expand or enter the market in a timely manner and offset the loss of competition caused by the merger,’ the CMA said.

Rentokil acquired the unit in October last year in a deal valued at £40 million. However, the regulator has set a deadline of April 23 for the company to provide solutions to address its concerns or it commence an in-depth investigation into the merger which could see the deal delayed until the latter part of this year.