Deutsche Bank sees 'substantial' opportunity for Rentokil's disinfection arm

Analysts at Deutsche Bank hiked their target price for shares of Rentokil Initial, highlighting the potentially "substantial" uplift to the company's disinfection services arm in the second quarter from the Covid-19 pandemic.

Although the latter was hard to quantify, analyst Lucas Ferghani said the firm was well-placed to benefit by cross-selling to existing clients.

Furthermore, rivals such as Clorox had seen demand for disinfection products roughly quintuple during the Covid-19 pandemic.

Nielsen and Google trends data also pointed to a enormous, roughly half of the above, jump in US sales of aerosol disinfectants throughout March and April.

Residential pest control was also expected to have grown, boosted by work from home.

On the downside, pest control was expected to be down double digits in the second quarter, although demand from food processors, grocery and healthcare should offer some support, Ferghani said.

The Hygiene unit was also expected to underperform, in line with facility services and workwear peers.

There were also some downside risks to Rentokil's margins because of the hit from the pandemic to higher margin geographies, including Europe, UK, Pacific and Northeast US.

Lastly, the analyst said, efforts to retain staff in anticipation of an eventual recovery "might result in higher drop through than expected by the market."

Yet while Deutsche stuck to its 'hold' recommendation for the shares, its target price was raised from 390.0p to 500.0p.