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Could Rentokil Initial plc cull your Brexit exposure?

Shareholders will be glad to read the report coming from Rentokil (LSE: RTO) HQ this morning, as the scheduled trading update came with two cherries on top. The first of these was an announcement of the acquisition of Residex LLC – the largest independent pest control and turf products distributor in the US. The deal sees Rentokil become the second largest business in its niche in the whole of the US and brings a significant boost to its forecasted annual revenues for its North American operations.

The second and equally sizeable cherry is the news that the company has been awarded a contract by the US CDC (Centers for Disease Control and Prevention) to control the mosquitoes known for carrying the Zika virus. The contract could open doors for Rentokil to engage with the CDC in future or even with other governments – offering a whole different avenue for the company to explore, separate from its services to private individuals and enterprises.

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Today’s report comes off the back of a solid YTD for Rentokil – with the share price having risen by 28.7% – and one would assume this news will only act to push it further up. The trading report to which these announcements were attached was itself quite light on information; we learn that Rentokil is on track to meet its year-end targets, and that Standard & Poor’s debt rating of the company has been raised to BBB, losing the negative. These bits of information are fairly inconsequential but at least they give the company a positive nudge and show that there is nothing dramatic to report. There was also a mention of the expected impact of Brexit on the company – we learn that around 90% of company revenue comes from outside of the UK and that little trade is done across borders, suggesting that the negative impact of a UK recession would be almost negligible for the company. In fact, the effect of a weakened sterling will add around £25m-£30m to the profits for 2016, so it could be argued that Rentokil stands to gain.

While these points are all favourable for the company, they do not really hold a lot of weight and waiting for the H1 interim results on the 28th of July would be a good call for an investor considering purchasing Rentokil but wanting some solid facts and figures first…

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Samuel Green has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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