DCF Studio

    RTO.L · LSE · Industrials

    Rentokil Initial plc

    Also onConsensus Drift

    Implied value per share

    GBp 656.79

    Market price

    GBp 319.30

    Implied upside

    +105.7%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 0.7466

    AdjustedReports in USD, trades in GBp. Modelled in USD, converted at the end.
    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    GBp 656.79+105.7%
    Exit multiple
    GBp 670.96+110.1%
    Market price
    GBp 319.30

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.0bnUSD 9.2bnUSD 10.6bnUSD 12.3bnUSD 14.1bn+15.4%
    EBITUSD 830.4mUSD 958.3mUSD 1.1bnUSD 1.3bnUSD 1.5bn+15.4%
    NOPATUSD 631.5mUSD 728.8mUSD 841.1mUSD 970.6mUSD 1.1bn+15.4%
    Add depreciation & amortisationUSD 753.5mUSD 869.6mUSD 1.0bnUSD 1.2bnUSD 1.3bn+15.4%
    Less capital expenditureUSD -344.2mUSD -397.2mUSD -458.4mUSD -529.0mUSD -610.5m+15.4%
    Less increase in working capitalUSD -86.7mUSD -100.0mUSD -115.4mUSD -133.2mUSD -153.8m+15.4%
    Free cashflow to firmUSD 954.2mUSD 1.1bnUSD 1.3bnUSD 1.5bnUSD 1.7bn+15.4%
    Discount factor0.97170.91750.86630.81790.7723-
    Present valueUSD 927.2mUSD 1.0bnUSD 1.1bnUSD 1.2bnUSD 1.3bn+9.0%
    Present Value Of The ForecastUSD 5.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate4.50%GBP assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta0.601Reported 0.405, pulled toward 1.0 (Blume)
    Cost of equity7.81%Risk-free + beta x equity risk premium
    Cost of debt4.50%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 8.0bn56.7% of capital
    Total debtUSD 6.1bn43.3% of capital, book value as a proxy
    Tax rate23.9%Effective, capped at statutory
    WACC5.91%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 8.80

    79% of EV

    Forecast FCFF, final year
    USD 1.7bn
    Capex at depreciation, working capital in reinvestment
    USD 1.5bn
    Less reinvestment at g/ROIC (42.3% of NOPAT)
    USD -649.4m
    Capitalised
    USD 885.7m
    ROIC (WACC floor)
    5.9%
    Terminal value, undiscounted
    USD 26.6bn
    Terminal value, discounted
    USD 20.6bn
    Enterprise value
    USD 26.1bn
    Less net debt
    USD 3.8bn
    Equity value
    USD 22.3bn

    Exit at 9.7x EBITDA

    Value per shareUSD 8.99

    79% of EV

    Terminal value, undiscounted
    USD 27.2bn
    Terminal value, discounted
    USD 21.0bn
    Enterprise value
    USD 26.6bn
    Less net debt
    USD 3.8bn
    Equity value
    USD 22.8bn

    Spread between methods: 2%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    3.91%15.8417.1619.3823.9739.66
    4.91%10.9211.0311.1511.3111.56
    5.91%8.728.768.808.848.88
    6.91%7.227.257.287.317.35
    7.91%6.106.126.156.186.20

    Outlined: this model. Green text: above today's price of 4.28. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year15.4%1.1%-14.3pp
    EBIT margin10.4%4.0%-6.4pp
    Discount rate5.9%10.4%+4.5pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.