Rentokil Inital raised to 'hold' from 'reduce' by HSBC

HSBC raised its rating on Rentokil Initial to ‘hold’ from ‘reduce’ and lifted its target price to 190p from 145p on Monday.

The bank said the pest control company’s international businesses are likely to benefit from a weaker pound.

“Our target price implies 7% downside from the current price; we upgrade the stock to Hold from Reduce, because in an uncertain world, an overseas currency earner with potential to transform has some attraction.”

HSBC said currency moves are likely to make the sterling level of pre-tax profit growth expected materially easier to achieve.

The systems at Rentokil have improved, and discounting is better controlled than in the past, the bank added.

However, HSBC said its core concern about Rentokil continues to be the remuneration of staff which could lead to “bids won on cost assumptions that could not be met and could result in contracts either lost or with margin problems and pricing pressure in re-negotiations”.

“On top of this was a habit of remunerating senior staff, on performance excluding restructuring, coincided with 48 consecutive quarters of restructuring and ‘one off’ charges.

“In short, selling a turnaround to the market seemed to take precedence over the rather duller, more laborious, task of fixing the business.”

Shares rose 0.97% to 207.70p at 0953 BST.