High-Risk High-Reward UK Giant

Charging & Fearless is the only newsletter that delivers under-the-radar, global stock picks before they make front-page news. We traverse borders to uncover the explosive potential of international companies beyond the scope of Wall Street analysts. Enjoy the 5-minute pitch on this week’s stock below...

Rentokil Initial

Rentokil Initial is the world’s largest pest control and extermination business. It operates in 87 countries and commands a dominant market share in each region. Its recent acquisition of Terminix has further expanded its North American footprint. 

Primed to Grow

Rentokil is bringing global scale to local markets. Its business model capitalizes on efficiencies that can’t be replicated at the mom-and-pop shops that make up much of its competition. This makes its bolt-on acquisition strategy very effective and has led to impressive historical returns for investors. However, its recent struggles can’t be ignored as macroeconomic factors in the U.S. — which makes up more than half of total revenue — have forced management to revise down its guidance and lower its margin forecasts for 2023. 

The question is, whether this is a short-term blip or the start of a sustained decline. 

Given the long-term success of the company and the clear cost advantages it boasts over smaller competitors, we think it will be the former, making Rentokil a big potential turnaround for opportunistic investors.

In Their Own Words

What Could Go Wrong?

Management’s Q3 warning has certainly stymied any momentum in the stock in the near term. If a slowdown in its North American operations continues, we will likely see further pain. Its final year report in March will be hotly anticipated. It also has put significant levels of debt on its balance sheet after the Terminix acquisition. While this isn’t really a concern given the company’s cash flows, a sustained downturn could put pressure on the business and perhaps even jeopardize its dividend. Final Word

Subscribe to Invest to read the rest.