Rentokil shares are jumping on signs that mega-pest deal is paying off

Rentokil has raised its sales forecast and expects further cost savings from its acquisition of US rival Terminix, which will send shares of the world’s largest pest control group up more than 10 percent.

The British company bought Terminix in late 2021 in a $5.4 billion deal to expand further into the US, the world’s largest pest control market. Rentokil now expects to realize $200 million in annual cost savings through 2025 from the Terminix deal, up from $150 million.

The $22 billion pest control industry has continued to grow despite the pandemic and recent economic slowdown, with middle-class expansion, rising concerns about viruses and diseases caused by Covid-19, and climate change driving the sector.

Rentokil said on Thursday it would raise its medium-term guidance for organic sales growth to at least 5 percent from an earlier range of between 4 percent and 5 percent.

Paul Sullivan, an analyst at Barclays, commented on Terminix’s additional cost savings that “although the quantum isn’t a surprise . . . The timing is earlier than expected and indicates the integration is off to a very good start.”

Rentokil’s shares rose 11 percent in afternoon trade, giving the company a market value of $17 billion.

Stephen Rawlinson, an analyst at Applied Value, said there are “limited details on how to do this [the cost savings] achieved, although the company mentions reducing the branch network from over 600 immediately after the takeover to under 400 depots.

The optimistic forecasts came as Rentokil reported a 25.6 per cent increase in sales to £3.71 billion last year. Adjusted profit before tax rose 28 percent to £532 million.

Chief Executive Andy Ransom said the group’s 6.6 percent organic revenue growth over the past year, which excludes the impact of acquisitions, “demonstrates the resilience of our business model.”

The Rentokil boss pointed to rising costs in the business, saying that “overall I would say that the inflationary pricing environment in most of our markets feels like it’s easing”.

Wages are “the biggest part of our cost base,” he said. “We still have a few months to watch the markets and see what other companies are doing. . . and then we will decide where to put our peers’ wage rate inflation,” he added.