Pest control and hygiene giant Rentokil Initial revealed robust 2012 results on Friday, beating analyst expectations, causing shares
to jump as much as 11 per cent, though analysts showed concern with the ongoing struggles with its City Link division.
Adjusted pre-tax profits came to £191m, a 10.1% year-on-year rise, driven in part by £59m of cost savings following a restructuring of the company's textiles and hygiene arm in France and its pest control division across a number of countries. Analysts were expecting a figure closer to £186m.
However, its parcel delivery arm, City Link, took the spotlight away from an otherwise strong year, as it posted a $26.4m operating loss. The division has weighed on the firm since 2007 due to high operating costs and a competitive market.
Nevertheless, Rentokil's total sales grew 2.8% at constant exchange rates
to £2.55bn, towards the higher end of market expectations.
The share price was up 10.7% at 100.2p before the close of trade.
The company reported particularly stellar results in the last quarter of the year with profit up 15.9% as it performed well in Asian markets including Malaysia, China and India.
During the year, Rentokil expanded its pest control operations through the acquisition of Western Exterminator and bolt-ons in North, Central and South America and the Middle East.
Chief Executive Officer Alan Brown said Rentokil finished the year on a high note as the organisation has matured over the past two years.
"While we remain mindful of continuing tough conditions across many of our markets, the operational changes we made during the year, together with the acquisition of Western Exterminator in December, give us confidence that 2013 will see us sustain the momentum we achieved in the final quarter of 2012," he said.
The group increased its final dividend by 7.5% to 1.43p, taking the full-year total to 2.10p.
Analysts remain cautious
In spite of the results either matching or beating Cantor Fitzgerald's forecast, the broker kept a 'sell' rating for the stock on Friday despite the broker's forecast.
Analyst Caroline de La Soujeole said the negative stance is due to: subdued sales growth; high exposure to Continental Europe; and uncertainty surrounding the City Link (CL) franchise.
"CL remains a drag and uncertainty remains as to when the situation will improve. Management had suggested at the time of the 3Q12 results that CL should breakeven in FY13, but we remain cautious given CL's track record of failing to deliver," she said.
Similarly, Investec analyst Gideon Adler retained a 'hold' recommendation, saying: "The stock continues to screen cheaply, but with trading risk in Europe and City Link with plenty to prove, we remain Holders for now."