One of the recurring themes of this column is that some of the best opportunities are provided by firms in industries that aren’t glamorous but are important. One industry that certainly fits the bill is pest control. If you run a restaurant, you’ll know how vital pest control is to your survival, as no one wants to eat in a place with flies in their soup – or worse. Similarly, as emerging markets become richer and people move into cities, their tolerance for pests dwindles. Rentokil Initial (LSE: RTO) is one company perfectly positioned to take advantage.
Founded in the UK just over 100 years ago, Rentokil dominates the UK market and has expanded overseas by acquiring companies in other countries and integrating them into the Rentokil brand. The most notable of these purchases was US company Terminix in 2022, which made Rentokil the largest company in the US, the biggest market in the world. Rentokil is now the world’s biggest pest-control company, operating in 90 countries, including virtually all of the world’s largest cities.
Rentokil Initial has ambitious plans for growth
The global pest-control market is expected to grow by 5%-6% a year over the next few years, and Rentokil has ambitious plans for giving its growth a further fillip. Firstly, it wants to expand into the countries where it doesn’t have a presence. It is also investing in digital technology to make its operations more effective and to keep costs down.
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The group also plans to expand its hygiene and washrooms business, which currently accounts for 20% of its revenue. At the same time, the sale of its workwear business to HIG Capital in October 2025 will not only make it a tidy sum of money but will also help keep the company streamlined and focused. Rentokil has seen its revenue double between 2019 and 2024, while its earnings per share have gone up by nearly two-thirds during the same period (and are expected to keep growing rapidly over the next few years). The company makes a solid 7% return on capital employed, a key gauge of profitability, and boasts a double-digit operating margin, which has helped it increase its dividend sixfold from 2019, while still investing in the business and keeping debt at manageable levels. All this more than justifies the fact that it trades at 19.4 times 2026 earnings; the stock also offers a dividend yield of 2.2%. In addition to strong fundamentals,
Rentokil’s stock has plenty of momentum. Over the second half of 2025, Rentokil was one of the stars of the FTSE 100, rising 38%. As a result, the shares trade well above their 50 and 200-day moving averages. With several brokers, including Morgan Stanley, recently upgrading Rentokil, I suggest that you buy it at the current price of 471p at £6 per 1p. In that case, I would put the stop-loss at 316p, which would give you a total downside of £930.
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