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Rentokil Initial (RTO) might be a bit of a minor household name, as the world’s leading pest control brand, but it’s not necessarily a name you want associated with your own household. However, during the pandemic increasing numbers have needed its services.

While most of us have been most pre-occupied with Covid it seems our ‘new’ stay-at-home habits have created a problem of their own - rats.

Data from Rentokil Pest Control shows that online rodent inquiries rose by 37% in 2020, with business closures and lockdowns as a result of the coronavirus outbreak appearing to have helped create favourable conditions for the animals to thrive.

Experts says it’s not all down to the pandemic though. The increase in vermin can partially be attributed to warmer weather, which enables rats and mice to produce more litters and helps them survive winters that would otherwise naturally curtail their numbers. And all of that spells good news for Rentokil, which provides pest removal and pest prevention services.

Usually around 80% of its business comes from commercial customers. These contracts are lucrative and accounted for 64% of total revenue and 68% of operating profits in 2019. However, again happily for Rentokil, the shortfall in commercial clients, brought about by the nation’s shuttered shops and offices, has been made up for in part by a surge in domestic call-outs.

And this is not just in the UK. Rentokil is very much a global business with almost 90% of its revenue generated outside the UK. The company is building up its presence in Asia and Latin America, but it is the US Pest Control division which is the business’s leader, making up just over 40% of overall revenue.

With a growing worldwide population, and busy towns and cities providing a perfect habitat for pests, the company’s pest control services are only likely to see an increase in demand in the years ahead. Climate change is also having an impact on pests and this is one area where Rentokil could stand to gain customers in the domestic side of the business, especially in the field of mosquito control. Its main US rival, Rollins, has reported a 30% rise in revenue for its mosquito control measures.

Of course, Rentokil is about more than just rat catching. Its Hygiene business, which trades under the Initial brand, is also a core part of the group, generating 20% of Rentokil’s revenue and 21% of

operating profits in 2019. Due to the pandemic, demand for its sanitiser, soap and deep clean and disinfection services has also soared in the past year.

So much so that Rentokil has said its 2020 adjusted pre-tax profits will be slightly ahead of the top end of market expectations. The current consensus is between £292 million and £337 million.

Rentokil knows though that it needs to spend to grow and 2020 saw a fair share of acquisitions completed. It acquired nine pest control businesses in North America in the fourth quarter, bringing the total number of acquisitions in 2020 to 23 at a cost of £180 million.

Investors will want to know Rentokil’s plans going forwards and its prospects for growth in more normal times. Its full year results are due out on Thursday. More on Rentokil Initial

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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