Rentokil Initial: Downgrading Moat to Narrow; Shares Still Undervalued

After transferring coverage to a new analyst, we are downgrading Rentokil Initial’s cost advantage-based moat rating to narrow from wide. The company's scale is a cost advantage, as its local route density and ability to spread fixed costs across a larger revenue base contribute to above-average margins. However, given its struggles integrating Terminix and its position relative to peer Rollins, Rentokil no longer earns a wide moat rating. We also decreased our fair value estimate by 21% to GBX 490/$32, although the shares remain undervalued.