Company Reports

Rentokil Initial is the largest pest control firm operating primarily in residential and commercial services. The industry is highly fragmented, with Rentokil, Rollins, and a few smaller global competitors, as well as over 40,000 regional and local players worldwide. Rentokil’s scale is a cost advantage, as its ability to spread fixed costs across a larger revenue base and its local route density contribute to industry-leading margins.

On the face of it, second-quarter results were not disastrous. However, shares fell by 18% in early trading as management revealed weak North American demand, a restructuring of its North American business, and the removal of its 20% North American margin target.

Rentokil Initial is the largest pest control firm operating primarily in residential and commercial services. The industry is highly fragmented, with Rentokil, Rollins, and a few smaller global competitors, as well as over 40,000 regional and local players worldwide. Rentokil’s scale is a cost advantage, as its ability to spread fixed costs across a larger revenue base and its local route density contribute to industry-leading margins.

Group organic revenue increased 3.4% in the first quarter, an acceleration from 1.8% the first quarter of last year. North America, the key region for the stock, also saw organic revenue acceleration, expanding 3.9% in the quarter.

Rentokil Initial is the largest pest control firm operating primarily in residential and commercial services. The industry is highly fragmented, with Rentokil, Rollins, and a few smaller global competitors, as well as over 40,000 regional and local players worldwide. Rentokil’s scale is a cost advantage, as its ability to spread fixed costs across a larger revenue base and its local route density contribute to industry-leading margins.

Rentokil Initial's organic growth was up 2.6% in 2025 and, more importantly, continued to show positive momentum in the fourth quarter. North America, the key region for the stock, saw organic revenue growth of 2.6% after declining in the first quarter of 2025.

Rentokil Initial is the largest pest control firm operating primarily in residential and commercial services. The industry is highly fragmented, with Rentokil, Rollins, and a few smaller global competitors, as well as over 40,000 regional and local players worldwide. Rentokil’s scale is a cost advantage, as its ability to spread fixed costs across a larger revenue base and its local route density contribute to industry-leading margins.

Recent poor performance by Rentokil presents a buying opportunity, as we expect the company to leverage its scale to increase organic growth and margins, leading to a convergence of valuation multiples between Rollins and Rentokil.

Rentokil Initial's organic revenue was up 3.4% year over year in the third quarter. More importantly, its North American pest control business experienced organic growth of 1.8%, up from 0.1% in the first half of the year. The shares were up 12% in early trading.

Rentokil's North American business experienced organic growth of 1.4% in the second quarter, up from both the same quarter last year and the first quarter of 2025, driven by an increase in leads and customer retention. Shares are up 10% in early trading.

Rentokil has agreed to sell its workwear business in France to H.I.G. Capital. This business, which specializes in supplying and maintaining garments, including workwear and personal protective equipment, generated revenue of $324 million and an adjusted operating profit of $57 million in 2024.

Rentokil's North American pest control business, which has struggled to integrate Terminix, saw organic growth of 0.7%, within the range of analyst expectations. While not a turnaround, the market reacted positively to the lack of bad news. The midyear update should offer more color on progress.

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.

Rentokil Initial is the largest pest control firm operating primarily in residential and commercial services. The industry is highly fragmented, with Rentokil, Rollins, and a few smaller global competitors as well as over 40,000 regional and local players worldwide. Rentokil’s scale is a cost advantage, as its ability to spread fixed costs across a larger revenue base and its local route density contribute to industry-leading margins.

Wide-moat Rentokil Initial reported 2024 results in line with its revised September trading update, which included lower profits and margins for the year. International organic growth of 4.7% was held back by poor North American growth of 1.5% in 2024. We are not changing our GBX 620/$40.30 fair value estimate.

Wide-moat Rentokil recorded fourth-quarter organic revenue growth in North America of 1.5%, which aligns broadly with its previous full-year guidance of 1%. At the group level, organic revenue growth was 3% for the period. We continue to anticipate a normalization in the organic performance of the US business from 2025 on, as recent sales and marketing and employee benefit investments bear fruit. We make no changes to our GBX 620 fair value estimate and view the shares as materially undervalued.

Rentokil Initial's strategy is sharply focused on the attainment and maintenance of market share leadership in the highly localised pest-control and hygiene-service markets it competes in. The strategy aims to benefit from ever-improving unit costs offered by economies of density in each localised geography in which Rentokil Initial operates via organic growth and a strong acquisition impetus aimed at rolling up the pest-control and hygiene-service markets, which remain substantially fragmented. To this end, Rentokil Initial has completed over 200 acquisitions since 2015—and has spent an average of GBP 300 million on tuck-in mergers and acquisitions annually over 2018-23 (excluding Terminix)—focusing on acquisition targets that build geographic density of its customers. The late 2022 acquisition of Terminix Global Holdings was a transformative and moat-reinforcing deal, creating a new U.S. market share leader. Pest-control targets remain Rentokil's top M&A priority, but tuck-in candidates for the hygiene segment are now also set to become a focus. The successful execution of the strategy has delivered a durable cost advantage for the pest-control business—the source of our wide economic moat rating for Rentokil Initial.

We make no change to our GBX 620/USD 40.30 fair value estimate following wide-moat Rentokil Initial’s third-quarter trading update. Rentokil is yet to pull off the turnaround of its beleaguered North American pest control business. Organic growth for the North American pest control business remained depressed in the third quarter, rising a modest 1.4%. Still, we think investors were assuaged by signs that turnaround measures are showing signs of promise, sending Rentokil shares some 9% higher in early trading. Rentokil shares screen attractively, with the stock price still reflecting low confidence that the performance of the North American pest control business can be ultimately restored—an overly pessimistic perspective, in our view.

Investors sent wide-moat Rentokil Initial shares significantly lower following its September 2024 trading update, which included a downwardly revised outlook for its North American pest control business. Ostensibly, Rentokil’s recent incremental investments in sales and marketing resources are yet to fully bear fruit, with lower-than-expected new customer lead flow holding back organic growth in the first two months of the second half of 2024. The commencement of Terminix branch integrations—into the broader Rentokil pest control branch network—caused disruption and contributed to the lower-than-anticipated organic growth outcome. Setting aside the North America pest control franchise, Rentokil’s global pest control and hygiene services businesses continue to perform well.

Wide-moat Rentokil Initial’s second-quarter performance offered glimpses of modest improvement in its beleaguered North American pest control operations. The North America pest control business reported a 50-basis-point sequential improvement in the organic sales growth rate to 1.5% in the second quarter, as previously announced incremental sales and marketing investments show early signs that they are restoring top-line growth. Still, the second-quarter performance in North America pales in comparison with peer wide-moat Rollins that posted 7.7% organic top-line growth in the second quarter, highlighting the ongoing challenges faced by Rentokil as it integrates the Terminix business into its broader North American operations.