AlphaValue/Baader Europe Upgrades Rentokil Initial to Buy, Trims PT

Britain's blue-chip FTSE 100 index closed 0.83% lower on Thursday as investors digested corporate earnings and a weak construction PMI report.

The British construction sector saw a sharp decline in February 2025, with business activity falling at its fastest rate since May 2020 amid weak demand conditions, elevated borrowing costs and a lack of new projects. The S&P Global UK Construction PMI came in at 44.6, down from 48.1 in January and the consensus estimate of 49.5.

"Construction companies remain optimistic overall about their growth prospects for the next 12 months, albeit less so than on average in 2024 amid increasing concerns about the broader UK economic outlook," S&P Global Market Intelligence economics director Tim Moore said.

On the upside, UK Prime Minister Keir Starmer and his Irish counterpart Micheál Martin met at the UK-Ireland summit in Liverpool as the two countries aim to strike a partnership. Ireland also proposed injecting 185.5 million pounds sterling into the UK, which could add over 2,500 jobs.

In corporate news, asset manager Schroders gained 12.62%, the top riser on the index, as profit attributable to equity holders for the 12 months ended Dec. 31, 2024, gained annually to 417 million pounds from 388.2 million pounds on revenue growth.

Melrose Industries was the worst performer, falling 18.18%, despite posting a smaller attributable loss for 2024 of 49 million pounds, compared with 1.02 billion pounds a year ago. The aerospace company recommended a higher dividend as revenue increased.

"Melrose delivered a strong 2024 performance driven by robust industry demand, ongoing aftermarket growth and the impact of extensive business improvement actions," Chief Executive Officer Peter Dilnot said. "This was achieved against the backdrop of ongoing industry-wide supply chain issues. We are well positioned for further progress in 2025, including the expected delivery of substantial free cash flow, despite ongoing industry challenges."

Pest control company Rentokil Initial lost 10.77% after attributable profit for 2024 dropped year over year to 307 million pounds from 381 million pounds amid lower revenue.

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Rentokil shares dropped 3% after reporting mixed full-year results. While North America profits exceeded expectations, weaker international performance and a free cash flow shortfall of 10% weighed on investor sentiment. The company also reported higher-than-expected net debt at £3.2bn and adjusted its 2025 free cash flow conversion forecast downward.

Meanwhile, investors have filed a lawsuit alleging the company misled them about the success of its Terminix integration and the stability of its organic revenue growth in North America. You can find more details about it here and stay updated on any future change

Rentokil Initial 2027 margin guidance might be too ambitious, J.P Morgan analysts say in a research note. Investors of the pest-control, hygiene and work-wear services provider are expected to be relieved that 2025 consensus expectations have been confirmed, the analysts say. The company should be able to achieve the margins guidance over time. However, the timeline for the 20% increase in North America might be difficult to reach, unless growth surprises materially on the upside, they say. Shares trade 3.4% lower at 674.80 pence. (nina.kienle@wsj.com)

Rentokil Initial said Thursday that profit and revenue for full-year 2024 fell year over year.

Profit attributable to equity holders for the 12 months ended Dec. 31, 2024, was 307 million pounds sterling, compared with 381 million pounds earlier. EPS moved to 0.1214 pound from 0.1507 pound.

The pest control company's revenue was 5.44 billion pounds, compared with 5.38 billion pounds a year ago.

Analysts polled by FactSet were expecting 5.43 billion pounds in sales, 530 million pounds in net income, and 0.2 pound in EPS.

Meanwhile, the board recommended an unchanged final dividend of 0.0593 pound per share, payable May 14 to shareholders on record April 4. This takes the full-year dividend to 0.0909 pound per share, up from 0.0868 pound per share in the previous year.