Rentokil rises 10% despite continuing City Link problems

[TrueBlueTerrier]

Rentokil rises 10% despite continuing City Link problems, as markets pause for breath

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Hygiene and pest control group beats profit expectations and issues upbeat outlook for coming year


Rentokil Initial has hit a near two year high after better than expected profits, despite the continuing drag of its struggling parcels business City Link.

The rat catcher and hygiene group jumped nearly 10%, up 8.8p to 99.3p, its best level since May 2011. Profits rose by 10.1% to £191m, better than forecasts of around £181m. The group finished the year strongly, with a 15.9% rise in profits in the fourth quarter, and it said the momentum was continuing. Chief executive Alan Brown said:

While we remain mindful of continuing tough conditions across many of our markets, the operational changes we made during the year [including £59m of cost savings], together with the acquisition of [US pest control business] Western Exterminator in December, give us confidence that 2013 will see us sustain the momentum we achieved in the final quarter of 2012.

It expects growth this year both organically and from bolt-on acquisitions.

But City Link made a £26.4m operating loss, despite revenues growing 4.8% as online shopping continues to expand. Its customer mix saw an increase in the number of larger but low margin business, while it saw declines in higher margin business. Analyst Gideon Adler at Investec said:

Rentokil preliminary results are a touch ahead, with organic revenue returning to growth in the fourth quarter. Cost savings have come in ahead of expectations and management sound confident of maintaining momentum into 213. City Link losses were marginally worse than guidance at £26.4m, and scrutiny around its roadmap to breakeven in 2013 looks set to intensify. The stock continues to screen cheaply, but with trading risk in Europe and City Link with plenty to prove, we remain holders for now.

[clashcityrocker]

It expects growth this year both organically and from bolt-on acquisitions.

I don't think it is realistic to expect growth from your bolt-on acquisition.
Maybe DGP knows better..........