Berendsen hit by RBC Capital downgrade

Commercial laundry group Berendsen was under the cosh as RBC Capital Markets cut the stock to 'underperform' versus 'outperform' and slashed the price target to 660p from 950p saying the risk profile has significantly increased.

The bank said weak current trading and the scale of the incremental capex investment and people change make it far more cautious.

RBC pointed out that when it turned positive on the stock two months ago, it thought forecasts were largely underpinned and that the UK business was in the price for nothing, assuming an extra £50m capex was required to fix the underinvestment issues.

However, since then its earnings per share estimates have come down a further 17% for 2018E, while plant capex will be around £300m more than it had expected over the next three years.

"The scale of this investment, and the scale of people change within a business, where local relationships are key, means we now believe the risk profile is significantly increased, whilst the company will be cash flow negative for the next three years."

RBC said it is now 4% below the company's £150m profit guidance for 2017, as it reckons the second half will be a stretch after what will be a very weak first half.

At 1045 BST, the shares were down 3% to 770.64p.