Rentokil Initial: Terminix Acquisition Creates Well-Positioned Leader

Bertie Thomson of Brown Advisory presented his investment thesis on Rentokil Initial (UK: RTO) at Wide-Moat Investing Summit 2022.

Thesis summary:

Rentokil Initial is the new market leader in a “biblical” industry. Humans have been controlling pests for six millennia, with future industry growth underpinned by urbanization, climate change, and wealth creation.

Rentokil’s impending acquisition of Terminix will result in a leading position in North America, the world’s largest pest control market. Pest control is a multi-local business with significant barriers to scale. The Terminix acquisition will increase densification, and Bertie views the announced branch-based synergies as conservative.

Bertie expects Rentokil to maintain its serial acquirer status and to continue to supplement organic growth with bolt-on acquisitions. He views Rentokil as materially undervalued and believes that long-sighted investors should enjoy a mid-teens annual IRR over the next five years, with further upside potential from the Terminix integration.

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About the instructor:

Bertie Thomson, CFA, is a portfolio manager within the global equity team at Brown Advisory, an independent investment management firm. Prior to joining Brown Advisory in October 2015, Bertie spent thirteen years at Aberdeen Asset Management where he was most recently a Senior Investment Manager in the pan-European equity team.

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