March 15, 2013 / 10:47 AM / in 4 years

UPDATE 2-Rentokil shares soar after profit tops forecasts

4 Min Read

* FY pretax up 10 pct to 191 mln stg vs f'cast 181 mln

* Revenue up 3 percent to 2.6 bln stg

* City Link makes operating loss of 26 mln stg

* Firm expects momentum from strong Q4 to continue

* Shares up 10 pct to 99.6p, hit two-year high (Recasts, adds share price, CEO and analyst comments)

By Christine Murray

LONDON, March 15 (Reuters) - Pest control to hygiene group Rentokil Initial Plc posted a 10 percent rise in annual profit, marking growth across its divisions as well as cost-cutting efforts and sending its shares to a near two-year high.

Rentokil, which offers services from hiring work uniforms and plants to catering and security, said on Friday adjusted pretax profit rose to 191 million pounds, against a forecast 181 million in a Thomson Reuters poll of banks and brokerages.

And it said it had seen increased momentum in the final quarter which it hoped would continue through the current year.

Its shares were up 10 percent at 99.6 pence by 0915 GMT, having been down 5.5 percent year to date before the results were published. The stock rose as high as 101.9p, its highest since May 2011.

Helping boost the performance was a higher-than-expected 59 million pounds in cost savings, which fell heaviest in its textiles and hygiene division, where the group is reorganising its warehousing operatings in continental Europe against a difficult economic backdrop.

There were cuts too in pest control and at struggling parcel delivery service City Link, though the company gave no figures for job reductions.

RBC Capital Markets analyst David Greenall, who has an "outperform" rating on the stock, said the share price rally was part of a trend across the support services sector.

Big Moves

"We've had a lot of stocks in the sector that have reported in-line numbers in the last two to three weeks, companies like Capita, Serco, Bunzl, but have all had big moves on the back of the fact that there are no incremental negatives," Greenall said.

"I think the market is basically saying that anything that's seeing any signs of improvement or is growing, they're currently happy to re-rate in a fairly buoyant wider marketplace."

Shares in Serco jumped 12 percent earlier in March after it reported a pickup in revenue growth in the second half of 2012 and hiked its annual dividend.

Rentokil Chief Executive Alan Brown said he expected the momentum the company had achieved in the last quarter of the year to continue into 2013.

On the downside, a 26.4 million pound operating loss in its City Link parcel delivery service was higher than the 25 million Brown had hoped for in November.

City Link, which Investec analyst Gideon Adler compared to an albatross round the neck of management in a note in January, has sapped growth at the company since 2007, due to high operating costs in a competitive market.

Many have singled the unit out for disposal.

Brown told journalists in a call it was more likely City Link would return to profit in 2014, rather than 2013 as he said in November.

He added that he would also consider selling off its facilities management arm, which operates mainly in the UK, if someone made an offer, in order for Rentokil to focus on its international businsses. ($1 = 0.6643 British pounds) (Editing by Kate Holton and David Holmes)

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