Rentokil Initial (LON: LON:RTO) share price went parabolic on Wednesday as the company entered a new phase as Elliot Management became one of its biggest investors. The stock soared by more than 13% and reached its highest swing since March 15th. It has soared by more than 18% from its lowest point this year.
Elliot Management to push changes
Rentokil Initial, one of the biggest players in the pest control, is now in the spotlight after Elliot Management took an over £400 million stake in the firm.
This action happened at a time when the stock has languished as the company went through a major slowdown. Before this week’s surge, the stock was down by more than 36% from its highest point in 2023, making it one of the top laggards in the FTSE 100 index.
The company’s growth has been slowing in the past few years. In its most recent earnings release, Rentokil said that its revenue rose by 0.9% in Q1 to over £1.27 billion. In constant currency, its revenue rose by 4.9%.
Most of Rentokil’s revenue came from North America followed by Europe, UK and Sub Saharan Africa, and Asia. Also, the company’s pest control was the biggest part of its revenue as it generated over £1 billion of revenue.
It is unclear what Nelson Peltz wants with the company. A likely case will be for Rentokil to move its listing from London to the United States, where it makes most of its money. The goal of such a move will be to close the valuation gap with Rollins, its American competitor.
US companies tend to attract higher valuation multiples. For example, Rollins has a price-to-sales ratio of over 40 while Rentokil trades at a valuation multiple of less than 20. Still, it is unclear whether a listing relocation will do the trick.
Peltz could also urge the company to increase its dividends and share buybacks. Rentokil, which pays dividends twice a year and has an annual yield of 1.8%.
The other approach to boost value would be for the company to explore a sale since the company is highly undervalued. Recently, there have been substantial interest in UK companies, with many private equity companies exploring their moves.
Still, Rentokil’s business is not growing as fast as it used to during the pandemic. As a result, the management warned that the business will be going through a transition as it continues to integrates its Terminix acquisition.
Rentokil Initial share price analysis
Rentokil chart by TradingView
The daily chart shows that the Rentokil stock price dived hard in November last year when it reported a weak trading statement. It has struggled to fill that gap since then.
Most recently, the stock has remained above the ascending trendline that connects the lowest swings since November. It then bounced back above the 50-day and 100-day Exponential Moving Averages (EMA).
The stock is nearing the crucial resistance level at 507p, its highest level in April. Therefore, I suspect that it will continue rising as buyers target that level. This increase will continue as investors wait for more statements from Peltz. The key level to watch will be at 507p, which is about 7.4% above the current level and a few points below the 50% retracement point.
This article first appeared on Invezz.com
