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Investing.com -- Rentokil Initial plc (LON:RTO) remains in a holding pattern as it navigates through a period of subdued North American performance, leadership transition, and a long-term integration plan that is still in early stages.
Analysts at RBC Capital Markets say the company is effectively in a "waiting room" as key developments, including a new CEO appointment and further progress on integrating its Terminix acquisition, are not expected to deliver clarity for several quarters.
Despite these short-term uncertainties, RBC is maintaining an “outperform” rating on the stock, pointing to long-term re-rating potential and fixable business issues.
The brokerage revised its forecasts following Rentokil’s disposal of its French Workwear business and currency adjustments.
RBC now expects a 4% decrease in FY26E EPS and has adjusted its target price down slightly to 440p.
The updated forecasts, which are now denominated in USD, reflect both the impact of the divestment and a weaker dollar, positive for EPS, but negative for net debt.
In terms of first-half expectations, RBC projects group organic growth of 1.8%, unchanged from Q1, with North America at 0.9%, a slight improvement from 0.7% in H1.
The adjusted EBITA margin is forecast to fall by 120 basis points to 15.3%, with the North American business expected to see a 200-basis-point drop to 16.6%. This translates to group adjusted PBTA of $448 million, down 8% year over year.
RBC analysts say visibility remains limited in the near term. North American trading in Q2 is likely to reflect continued weak organic growth trends, and the revised integration plan for Terminix will not see a restart in branch integrations until the third quarter. Additionally, no timeline has been provided for the CEO announcement, further adding to the uncertainty.
Still, RBC views the longer-term potential for Rentokil as significant. The revised integration plan closely resembles the approach taken by Rollins, a leading competitor, and is seen as strategically sound.
RBC believes the marketing challenges in North America are fixable and that Rentokil’s scale positions it well to eventually deliver stronger growth and improved margins.
The completion of the integration program and the return to organizational stability by the end of 2026 are seen as key turning points.
While North America remains a drag, RBC notes that Rentokil’s international operations are performing well and that its exposure to emerging markets provides a point of differentiation from peers.
The brokerage also underscores the importance of appointing a credible CEO with experience in the U.S. pest control market to help restore market confidence.
Valuation remains a central part of RBC’s thesis. Analysts estimate that the North American Pest Control business is currently valued at just 13x P/E, in stark contrast to Rollins, which trades at 53x.
If Rentokil can execute its integration and return to growth, RBC sees no reason why the shares could not eventually trade back in the 25x to 30x P/E range, off a much higher EPS base of 41c or 31p by FY30. That scenario implies the potential for the stock to double over a five-year horizon.