Rentokil Initial PLC (LSE:RTO), the FTSE 100 pest control and hygiene services group, received a significant vote of confidence on Thursday as UBS upgraded the stock from neutral to buy.
The Swiss bank also lifted its price target from 430p to 540p, arguing that three years of self-inflicted market share losses in North America are finally coming to an end.
The shares rose 2.6% to 479.05p, putting them near the top of the FTSE 100 leader board.
UBS, which had been cautious on Rentokil since its 2022 acquisition of US pest control giant Terminix, said a strategic overhaul launched last year had materially improved its confidence in the North American recovery.
The original integration plan had targeted over 200 branch closures to extract cost synergies, but the resulting disruption to local lead generation and customer retention drove steady organic market share losses, with volumes in North American pest services estimated to be around 5% below 2022 levels by the end of last year, even as the broader market grew.
Management has since reversed course, pivoting to net branch openings, with 150 smaller satellite branches added and a further 70 planned this year, taking the total network to around 800 locations and bringing it much closer in structure to US peer Rollins.
UBS now forecasts organic volume growth to stabilise in the second half of this year before turning positive in 2027, with North American margins reaching 19.5% by that point, below the company’s own 20% target but well ahead of the roughly 17% it believes the current share price implies.
The bank forecasts group earnings before interest, tax and amortisation growing at a 7% compound annual rate between 2026 and 2028, and sees further upside from a potential re-acceleration of bolt-on acquisitions as profits stabilise.
At 540p, the implied valuation of the North American business would still sit at a material discount to US service network peers, which trade on an average of around 25 times earnings.
