Shares in pest control and hygiene group Rentokil (RTO) surged 12% after the firm posted a recovery in FY25 sales and earnings. The company also confirmed its medium-term North America cost reduction and margin targets.
Big improvement
For the year to December, Rentokil increased revenue by 4.4% to $6.9 billion. The firm noted H2 LFL revenue growth accelerated to 3.5% against 1.6% in H1.
Group operating profit increased 6.2% to $1.07 billion, representing a margin of 15.5% against 15.2% previously. Importantly, free cash flow increased 24% to $615 million with cash conversion reaching 98%, ahead of expectations.
‘2025 has been a year of encouraging progress with improving performance through H2 after the strategic initiatives we implemented from Q1’, said CEO Andy Ransom.
Ransom added: ‘We have made good progress in cash generation and cost discipline across the group. There is still more to do, building on this progress, to fully realise the potential of this business.’
These were the last set of results to be presided over by Ransom, who has led the group for the last 12 years. New CEO Mike Duffy, who has a logistics and ecommerce background and is based in the US, takes over this month.
Rentokil shares have been drifting since 2024 when it paid up for US rival Terminix. However, it finally seems to have got a handle on things and is winning new customers while retaining existing ones.
By refocusing its marketing on better lead generation and investing in regional brands the contracts are starting to flow. Moreover, pricing discipline means profitability is recovering and free cash flow generation has increased sharply.
It still can’t match Rollins (ROL) in terms of growth or margins, which explains the superior performance of the US company. However, it will no doubt appeal to investors who like recovery plays and on 24 times FY25 EPS the stock isn’t expensive.
Read the press release here: https://www.rentokil-initial.com/investors.aspx
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