Rentokil: Activist Stake Indicative of Latent Shareholder Value; Shares Still Appeal

Shares in Rentokil Initial remain appealing despite the pronounced stock price response to news that activist investor Nelson Peltz has acquired a significant stake in the wide-moat pest control name. Peltz’s investment firm, Trian Partners, disclosed that it is now one of Rentokil’s top 10 shareholders, sending shares some 12% higher in early trade on June 12. We think Peltz’s investment underscores the extent to which investors remain overly pessimistic regarding Rentokil’s longer-term prospects, having overreacted to the business’ recent underperformance. We continue to see upside, with the stock still trading at a 25% discount to our unchanged GBX 620/USD 39.50 fair value estimate.