Image source: © 2025 Krish Capital Pty. Ltd.

Highlights

  • Berenberg’s analysts has assigned a sell rating to Rentokil with a target price of AUD 5.77
  • The company completed the sale of its French Workwear business to H.I.G. Capital for approximately AUD 480 million.
  • Group revenue grew 3.1% with 93% free cash flow conversion in recent half, and a maintained interim dividend of 4.15 cents per share.

Rentokil Initial plc (LSE:RTO.L) has received a sell rating from Berenberg. Analysts of Berenberg has assigned a target price of AUD 5.77, indicating more than 24% downside potential from current levels.

Strategic Divestment of French Workwear Business

Recently, Rentokil Initial announced the completion of the sale of its Workwear business in France to H.I.G. Capital. The transaction values the business at approximately €410 million (AUD 480 million), including a potential earn-out of €30 million (AUD 35 million) tied to performance in 2026. Net proceeds are expected to total €370 million (AUD 435 million), which will be allocated to reducing debt, funding organic growth initiatives, and supporting complementary acquisitions. This divestment aligns with the company’s strategy to focus on its core Pest Control and Hygiene & Wellbeing operations, which will now comprise roughly 85% and 15% of Group revenue, respectively. The move is expected to improve capital efficiency and enhance cash conversion margins by approximately 100 basis points.

H1 2025 Financial Performance

In the first half of 2025, group revenue grew 3.1%, driven by a 5.1% increase in international markets. Organic growth reached 1.6%, with North America contributing 1.1% and other international markets 2.7%. Notably, North American organic growth strengthened in Q2 to 1.4% from 0.7% in Q1. Adjusted operating margin for the group stood at 15.2%, with North America achieving 16.9%. Cash flow generation was also reported, with 93% free cash flow conversion, exceeding guidance of 80%. Interim dividends were maintained at 4.15 cents per share. Net debt to adjusted EBITDA ratio stood at 2.8x, reflecting an adverse foreign exchange impact of AUD 175 million.

Operational and Strategic Initiatives

The company has continued to advance its North America RIGHT WAY 2 program, resulting in improved colleague retention of 80.7% and customer retention of 80.5%, up from 77.8% and 79.8% in the previous year. Marketing budgets have been refocused on organic lead generation, contributing to a 6.6% improvement in residential and termite lead flow in June. Rentokil Initial currently operates 100 satellite branches, with plans to expand to 150 by the end of the year.

Integration efforts in the second half of 2025 will focus on migrating standalone commercial businesses to the Pestpac system and refining operational processes in previously migrated branches. The company anticipates approximately AUD 100 million in cost reduction opportunities from integration and expects North American operating margins to exceed 20% post-2026.