Rentokil Earnings: Dampened Economic Outlook Offers Minimal Challenge in Early 2023

Wide-moat Rentokil Initial’s 2023 interim result was robust, with its performance in the first six months of 2023 largely unhindered by expectations for softening economic conditions in its two largest markets—the U.S. and Europe. Still, organic growth softened slightly in the second quarter to 5.9%, down from a heightened 6.7% in the first three months of the year, aligning with our expectations for a modest slowing in organic pest control and hygiene volumes as 2023 progresses. Our 2023 estimates remain largely unchanged—we forecast full-year EBIT of GBP 935 million and EPS of GBP 0.24—as do our long-term expectations for the wide-moat stock. Nonetheless, a time value of money adjustment leads us to lift our fair value estimate by 3% to GBX 600/USD 38. Rentokil shares screen as modestly overvalued, trading at a 4% premium to our revised valuation.