Rentokil Initial: Some Progress But US Business Strategy Remains Key (Rating Upgrade)
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Retirement Pot2.01K FollowersFollow5ShareSavePlay(6min)CommentsSummaryRentokil Initial (RTO) remains an attractive business, but uneven performance and a high P/E of 43 temper enthusiasm. Revenue grew modestly, yet operating and pre-tax profits declined; free cash flow improved 31% on better working capital management. North American sales and marketing initiatives aim for a 20% operating margin post-2026, but execution risk remains, especially post-Terminix acquisition. I upgrade the name from 'sell' to 'hold' as improved free cash flow and potential U.S. gains partly offset valuation concerns. nuttapong/iStock Editorial via Getty Images I last covered pest control and facilities company Rentokil Initial (RTO) in my January “sell” piece, Rentokil Initial: Slowing Growth And Poor Cash Flows Make It Look Pricey. Since then, it hasThis article was written byRetirement Pot2.01K FollowersFollowI am a private investor based in the United Kingdom and most interested in equities in the U.K., U.S., Canada and Norway.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does Rentokil's current valuation compare to its operational performance?RTO trades at a P/E of 43 and around 13x net cash from operations, which remains high given recent profit declines despite improved free cash flow.What are the key forward drivers for RTO's U.S. business?Targeted sales and marketing initiatives are expected to unlock $100m in cost savings and raise North American operating margins to 20% beyond 2026, contingent on successful execution.What is the main risk to Rentokil's investment case?The primary risk is RTO's ability to realize benefits from the 2022 Terminix acquisition and improve uneven performance, particularly in the U.S. market.Recommended For You