Rentokil boosted by Credit Suisse upgrade

Rentokil Initial got a boost on Thursday after Credit Suisse upgraded its stance on the stock to ‘outperform’ from ‘neutral’ and lifted the price target to 190p from 155p.

The bank said that as Pest Control – which it reckons is Rentokil’s strongest and most attractive operation – becomes a larger portion of the group and restructuring charges fall to minimal levels, the business can produce excess cash that can be recycled into M&A.

“This can further increase the group weighting towards Pest Control producing higher margins and organic return on net assets resulting in further cash generation that can augment the pest operation.

“We think the business can compound significant value in coming years and upgrade,” CS said.

It said that in growing non-cyclical end markets, the company’s pest control business benefits from the global leading brand, increasingly dense networks and innovative new products.

CS noted the pest control division has risen from 22% of revenues in 2012 to 45% by 2015. It expects it to hit 50% with the current assets and close to 55% including future acquisitions by full year 2018.

It said the price target was a combination of an organic discounted cash flow at 160p and the potential value of future acquisitions at 30p.

At 1552 GMT, Rentokil shares were up 4.5% to 170.90p.