Rentokil Initial PLC (LSE:RTO) has been upgraded to ‘buy’ from ‘hold’ by Deutsche Bank, ahead of the US$6.7bn acquisition of US outfit, Terminix Global Holdings.
The German broker believes the upcoming Terminix deal has significant potential to add value for shareholders.
Recent stock exchange filings indicate that Terminix's own internal projections are substantially higher than market forecasts for 2023 and beyond and they assume US$175mln of synergies are possible, compared to Rentokil’s indicated net cost synergies of at least US$150mln.
Deutsche Bank (DB) noted that the wider pest control industry has experienced consistent growth through the cycle in the USA, with no year of nominal revenue decline since 1988, and in only four years has there been a decline in real terms.
“We believe this should result in a resilient performance in the event of a weakening economy. Industry data indicates prices are rising to offset costs,” it added.
DB’s target price remains unchanged at 550p. Rentokil’s shares currently trade at 464.5p, up 1.0% on the day.