Berenberg upgrades Rentokil to 'buy' on proposed Terminix deal

Analysts at Berenberg hiked their target price on pest exterminator Rentokil Initial from 510.0p to 640.0p and upgraded their stance on the stock from 'hold' to 'buy' on Friday following the firm's proposed acquisition of US firm Terminix.

Berenberg stated Rentokil's proposed acquisition completely changed the competitive landscape in North American pest control and would leave the firm in "a very strong position", with a leading 31% share of the market versus the next peer at 21%.

The German bank also said Rentokil had the management team and track record to turn Terminix around and lift its business model to its own level.

"The combined business will have a household name brand in residential pest control to complement Rentokil's premium commercial portfolio. Furthermore, the combined North American business will look a lot more like competitor Rollins, which trades on a healthy premium," said Berenberg.

"This leaves significant scope for upside on valuation and the sell-off after the deal announcement creates an attractive entry opportunity."