Jefferies hikes Rentokil price target, cites buying opportunity

It noted that since Rentokil announced the acquisition of US rival Terminix in December, the shares have underperformed around 20%%, which when adjusted for potential earnings accretion suggests a more than 35% de-rating on a fully synergised view.

"We see this as a buying opportunity," it said. "We are positive on the deal, believe strategically it makes sense and see significant upside to synergy targets and deal economics, which may be underappreciated by the market."

It said the deal acquisition is "transformational" for Rentokil. "Market leadership in a network business is everything, and Rentokil will move to take a circa 27% share of the world's largest pest control market.

"It also addresses key questions around how quickly Rentokil can build out its residential pest coverage, provides further scale to overlay benefits from investments in IT, digitalisation and technology, positive for margin, and offers additional levers to help manage the increasing challenges of cost inflation."

Jefferies added that "patience will be needed", with the shares likely to be rangebound in the near term until confidence in deal completion improves.