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Rentokil Initial (RTO)
NYSE:RTO

Rentokil Initial (RTO) AI Stock Analysis

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Rentokil Initial

(NYSE:RTO)

Rating:76Outperform
Price Target:
$26.00
▲(11.16%Upside)
Rentokil Initial's stock is supported by robust financial performance and a reasonable dividend yield. However, mixed technical signals and challenges from the earnings call, particularly in North America, weigh on the score.

Rentokil Initial (RTO) vs. SPDR S&P 500 ETF (SPY)

Rentokil Initial Business Overview & Revenue Model

Company DescriptionRentokil Initial plc, together with its subsidiaries, provides route-based services in North America, the United Kingdom, rest of Europe, Asia, the Pacific, and internationally. It offers a range of pest control services for rodents, and flying and crawling insects, as well as other forms of wildlife management for commercial and residential customers. The company also provides hygiene services, including the provision and maintenance of products, such as soap and hand sanitizer dispensers, hand dryers, air care and purification, cubicle and surface sanitizers, feminine hygiene units, toilet paper dispensers, and floor protection mats. In addition, it engages in the supply and laundering of workwear, uniforms, cleanroom uniforms, and protective equipment. Further, the company installs and services interior and exterior plant displays, flowers, replica foliage, Christmas decorations, and ambient scenting for commercial businesses; offers property care services consisting of damp proofing, property conservation, and woodworm and wood rot treatment; and provides a range of specialist cleaning services, such as graffiti removal deep cleaning of kitchens and washrooms, trauma cleaning, and flood or fire damage cleaning, as well as specialist industrial cleaning and disinfection services, including the professional and discreet disinfection of areas that have been exposed to bio-hazardous situations, such as crime and trauma scenes, prison cells, void properties, emergency vehicles, and healthcare establishments. Additionally, it offers a range of healthcare waste management services comprising the collection, disposal, and recycling of hazardous and offensive waste produced by businesses and organizations associated with the provision of healthcare; and color-coded sharps disposal bins to deal with various types of waste. Rentokil Initial plc was founded in 1903 and is headquartered in Crawley, the United Kingdom.
How the Company Makes MoneyRentokil Initial generates revenue primarily through its pest control and hygiene service offerings. The company's pest control services include the identification, prevention, and eradication of pests across residential, commercial, and industrial properties. These services are provided through one-time treatments or ongoing service agreements, which create a recurring revenue stream. The hygiene services division offers products and services such as hand hygiene, air care, and washroom solutions, which are typically contracted on a subscription basis. Rentokil Initial also benefits from strategic partnerships and acquisitions that expand its market reach and service capabilities. The company's earnings are further supported by its extensive global network, allowing it to leverage economies of scale and maintain a competitive edge in the industry.

Rentokil Initial Earnings Call Summary

Earnings Call Date:Mar 06, 2025
(Q4-2024)
|
% Change Since: -5.61%|
Next Earnings Date:Jul 31, 2025
Earnings Call Sentiment Neutral
The earnings call highlighted strong international growth and improvements in customer and colleague retention. However, it was overshadowed by challenges in North America, including lower-than-expected revenue growth, profit declines, and integration complexities. The company is implementing strategic changes to address these issues, but the overall sentiment reflects the significant challenges that remain.
Q4-2024 Updates
Positive Updates
International Revenue Growth
International businesses outside of North America delivered strong revenue growth of 8.2%, with organic revenue contributing 4.7%. Pest Control organic growth was particularly strong at 5.3%.
Customer and Colleague Retention
Colleague retention increased by 2.4%, reducing recruitment needs by around 1,000 people. Customer satisfaction improved with a one-point increase in Net Promoter Score and customer retention rose by 50 basis points.
Satellite Branch Expansion
Opened 10 satellite branches in Q4, with a plan to exceed 500 locations including satellites. The satellite branches are part of a strategy to enhance local presence and operational efficiency.
Workwear Business Performance
French Workwear business delivered revenue growth of 7.1%, all organic, with adjusted operating profit growing by 8.6% and margins at 17.7%.
International Business Growth
International revenue grew by 8.2% to GBP 2.2 billion, with 4.7% organic growth led by Pest Control and Workwear. The Europe and LatAm region saw a 5% increase, with adjusted operating profit also up by 5.7%.
Negative Updates
North America Underperformance
North American revenue grew by only 1.3%, with organic growth at 1.5%. Adjusted operating profit declined by 7% due to below-plan revenue growth and higher in-year investments.
Profit Decline and Margin Reduction
Adjusted operating profit was down 7.1% to GBP 860 million, with a corresponding margin reduction of 130 basis points.
Cost and Investment Inefficiencies
A portion of investments in 2024 did not drive optimal effectiveness, leading to suboptimal sales and marketing returns. These will be redirected in 2025.
Integration Challenges
The integration of Terminix is complex and has led to periods of disruption. The program is expected to be complete by the end of 2026, with significant cost savings anticipated post-integration.
Weak Q1 Start and Lead Generation Issues
Q1 2025 is off to a slow start due to weak lead flow, adverse weather, and the leap year effect. Lead generation and sales conversion are areas needing significant improvement.
Company Guidance
During the call, Rentokil Initial provided guidance on its performance and strategy for 2025. The company reported a revenue of GBP 5.6 billion in 2024, marking a 3.9% increase, with organic growth at 2.8%. The North American business underperformed with only 1.3% growth, while International saw an 8.2% increase. Customer retention improved by 60 basis points to 80.1%, and colleague retention increased by 4.2%. The company plans to continue its integration of Terminix, aiming to achieve operating profit margins above 20% by 2027. For 2025, Rentokil aims to enhance lead generation, improve sales conversion, and expand its branch network to over 500 locations, including new satellite branches. The company's capital allocation strategy prioritizes organic investment, bolt-on acquisitions, and a progressive dividend policy, with a target net debt-to-EBITDA ratio of 2 to 2.5x. Rentokil expects to meet market expectations for 2025 despite a slow start in Q1.

Rentokil Initial Financial Statement Overview

Summary
Rentokil Initial presents a strong financial profile with consistent revenue growth, solid profitability, and effective cash flow management. The increasing debt levels are a concern but are offset by strong profitability and cash flow.
Income Statement
85
Very Positive
Rentokil Initial has demonstrated steady revenue growth, with a significant increase from 2020 to 2024. The gross profit margin and net profit margin indicate healthy profitability, although there was a slight decline in EBIT and EBITDA margins between 2023 and 2024. The company's ability to maintain a high revenue growth rate and strong margins highlights its competitive positioning in the corporate services industry.
Balance Sheet
78
Positive
The balance sheet reflects a strong equity base with a moderate debt-to-equity ratio, indicating prudent financial leverage. The equity ratio is stable, but there is a noticeable increase in total debt over the years. Return on equity is healthy, driven by consistent net income growth, though the rising debt level poses a potential risk if not managed carefully.
Cash Flow
82
Very Positive
Operating cash flow remains robust, supporting the company's free cash flow generation. The free cash flow to net income and operating cash flow to net income ratios are favorable, showcasing effective cash conversion. However, the free cash flow growth rate has been inconsistent, suggesting fluctuations in capital expenditures and cash management strategies.
Breakdown
Dec 2024Dec 2023Dec 2022Dec 2021Dec 2020
Income StatementTotal Revenue
5.44B5.38B3.71B2.95B2.79B
Gross Profit
726.00M4.45B977.00M714.80M653.00M
EBIT
549.00M625.00M498.00M366.20M301.00M
EBITDA
990.00M1.16B767.00M656.00M581.00M
Net Income Common Stockholders
307.00M381.00M232.00M263.00M186.00M
Balance SheetCash, Cash Equivalents and Short-Term Investments
927.00M1.55B2.17B670.00M2.12B
Total Assets
10.55B11.13B11.92B4.32B5.58B
Total Debt
4.14B4.73B5.40B1.93B3.14B
Net Debt
3.22B3.19B3.23B1.26B1.19B
Total Liabilities
6.33B7.04B7.82B3.06B4.45B
Stockholders Equity
4.23B4.09B4.10B1.26B1.13B
Cash FlowFree Cash Flow
507.00M526.00M414.00M407.20M382.60M
Operating Cash Flow
678.00M737.00M604.00M567.10M535.10M
Investing Cash Flow
-373.00M-416.00M-1.20B-445.00M-509.20M
Financing Cash Flow
-752.00M-361.00M1.32B-417.10M253.50M

Rentokil Initial Technical Analysis

Technical Analysis Sentiment
Negative
Last Price23.39
Price Trends
50DMA
23.07
Positive
100DMA
23.40
Negative
200DMA
24.40
Negative
Market Momentum
MACD
0.15
Positive
RSI
47.19
Neutral
STOCH
15.34
Positive
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For RTO, the sentiment is Negative. The current price of 23.39 is below the 20-day moving average (MA) of 23.72, above the 50-day MA of 23.07, and below the 200-day MA of 24.40, indicating a neutral trend. The MACD of 0.15 indicates Positive momentum. The RSI at 47.19 is Neutral, neither overbought nor oversold. The STOCH value of 15.34 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for RTO.

Rentokil Initial Risk Analysis

Rentokil Initial disclosed 27 risk factors in its most recent earnings report. Rentokil Initial reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks

Rentokil Initial Peers Comparison

Overall Rating
UnderperformOutperform
Sector (66)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
UNUNF
77
Outperform
$3.29B22.937.17%0.76%5.04%31.69%
RTRTO
76
Outperform
$11.87B30.067.44%3.27%3.96%-17.48%
ULULS
74
Outperform
$14.17B42.0741.07%0.73%6.84%29.09%
CBCBZ
74
Outperform
$3.76B46.846.25%32.27%-40.50%
71
Outperform
$10.50B30.8511.77%1.05%-3.47%-45.03%
66
Neutral
$4.47B12.225.40%3.65%4.14%-12.00%
ABABM
61
Neutral
$2.80B35.974.30%2.36%3.52%-67.27%
* Industrials Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
RTO
Rentokil Initial
23.39
-5.26
-18.36%
ABM
ABM Industries
44.93
-4.66
-9.40%
CBZ
CBIZ
68.86
-7.25
-9.53%
UNF
UniFirst
184.45
29.69
19.18%
ARMK
ARAMARK Holdings
40.08
6.75
20.25%
ULS
UL Solutions Inc. Class A
70.66
29.78
72.85%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.