Rentokil Initial Is Closing Out 2022 With Strength; Shares Fairly Valued

Rentokil Initial's strategy is sharply focused on the attainment and maintenance of market share leadership within 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 within each localised geography in which Rentokil Initial operates—via organic growth and a strong acquisition impetus aimed at rolling up 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 330 million on mergers and acquisitions annually over 2017-21—focusing on acquisition targets that build geographic density of the group's customers. Further, the late 2022 acquisition of Terminix Global Holdings is 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.