Broker tips: Oxford Instruments, Rentokil

HSBC initiated coverage of Oxford Instruments on Wednesday with a ‘hold’ rating and 2,900p price target as it said it is an undisputed expert in its field but that a strong share price performance since March 2020 might be stalled by export restrictions and change at the helm.

The bank said short-term opportunities and challenges seem to be balanced, i.e. further growth prospects for Oxford Instruments’ high-tech tools might be come under pressure from stricter export regulations.

"We argue that existing and marginal investors might want to hear the views and strategic intentions of the incoming new CEO Richard Tyson, but that could take until Spring 2024.

"Hence, continued execution might be the main theme until then."

HSBC noted that the share price has more than tripled since March 2020. Its multiples have re-rated by 30% to 50% from their historical levels and are at a 20% premium to peers, albeit on 300 basis points or 15% lower margins, it said, adding that a further multiple expansion is unlikely.

Oxford Instruments produces high-end scientific instruments that enable material analysis, manipulation and imaging down to the atomic and molecular level.

Jefferies upped its price target on Rentokil Initial to 740p from 640p after it hosted the company’s management at its ‘Key Drivers Conference’ this week.

"Overall we came away from meetings upbeat, with encouraging progress on the Terminix integration reiterated, increased confidence on mid-term margin opportunity, and resilient nearer-term activity continuing," the bank said.

"We use this opportunity to update estimates post 1Q results last month, increasing our target price to 740p and maintaining our buy rating."

Jefferies said management comments point to solid trends reported at the first quarter continuing into the start of the spring season.

"Confidence around pricing pass through remains strong, with cost inflation still being offset comfortably and an expectation that easing energy cost will help to moderate increases required in 2H," it said.

It added that comments around broader macro risk and resilience remain encouraging, with management seeing no signs in the business of slowing activity, including the Ambius business which would typically be an early indicator.