ii view: troubled Rentokil simplifies the business
Shares in this major provider of pest control and washroom services are down 28% over the last five years. Analyst Keith Bowman looks at prospects.
28th May 2025 11:29
by Keith Bowman from interactive investor
Sale of French Workwear business
Chief executive Andy Ransom said:
"This transaction is a further important step in the execution of our strategy to focus the company on Pest Control and Hygiene & Wellbeing, where we are a market leader. Over recent years we have been reshaping our portfolio towards higher growth markets and lower capital expenditure operations.”
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ii round-up:
Rentokil Initial (LSE:RTO) today continued a push to enhance performance as the business services provider announced the sale of its workwear providing division based in France.
The disposal to alternative asset manager H.I.G Capital for $465 million (£344 million) leaves Rentokil focused on its core Pest Control and Hygiene & Wellbeing divisions.
Shares in the FTSE 100 company rose 1.5% in UK trading having come into this latest news down by just over a tenth year-to-date. That’s in contrast to a 6% gain for the FTSE 100 index in 2025. US headquartered hygiene chemicals maker and fellow pest control services provider Ecolab Inc (NYSE:ECL) is up by just over a tenth year-to-date.
Rentokil is today the biggest provider of pest control services across North America, a position which follows its increasingly challenged acquisition of US rival Terminix for $6.7 billion (£5.8 billion) back in 2022.
Following the sale of the French Workwear business, Pest Control is expected to continue generating the vast majority of sales, with the Hygiene & Well Being ‘Initial’ business, largely providing washroom services, now accounting for the balance of 20% and up from a previous 16%.
North American Pest Control services for residential, commercial and termite customers fell 0.2% during the first quarter to late March as it continued to be impacted by low inbound lead flow and contract sales.
The sale of Workwear is expected to improve Rentokil’s capital efficiency, given a meaningful reduction in capital expenditure, boosting cash flows and pushing a potential small reduction in company debt.
The Workwear sale is expected to complete in the final quarter of 2025. First-half results to late June are scheduled for 31 July.
ii view:
Started in 1925, the Crawley headquartered company today employs over 65,000 people. Group brands range from Rentokil itself in Pest Control to Initial and Ambius for Hygiene and Well Being under washroom and plant care services. Geographically, the US generated most sales in 2024 at 58%. Other countries of note included the UK and France each at around 7%, Australia at almost 4% and Spain and India at just over 1% each.
For investors, sales at its core North American Pest Control business remain challenged, with management summarising first quarter performance as ‘slow.’ Large company acquisitions such as that for Terminix are not without risk and can prove problematic. The sale of the Workwear business does reduce business diversity, while costs for businesses generally, and particularly wages, are now elevated following a period of heightened inflation.
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More favourably, increased focus for management on the challenged US Pest Control business comes with this simplification. Initiatives to improve Pest Control performance include changes in internet search the establishment of a door-to-door sales pilot programme. Pest Control is a largely non-discretionary and an essential service for customers such as those in hospitality. Bolt-on acquisitions included India’s second-largest pest control company during 2024, while a forecast dividend yield of around 2.6% is not to be forgotten.
In all, ongoing performance initiatives and a consensus analyst target price of over 420p offer hope. That said, more cautious investors are likely to demand firm evidence of recovery before taking action.
Positives:
- Diversity in both business type and geographical location
- Pest Control is a largely non-discretionary and essential service
Negatives:
- The weather can influence performance
- Currency movements can impact
The average rating of stock market analysts:
Strong hold
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