Broker tips: Rentokil Initial, Quilter

12th Mar 2024 16:29

(Sharecast News) - RBC Capital Markets upped its price target on Rentokil Initial on Tuesday to 590.0p from 575.0p and maintained its 'outperform' rating on the stock.

The Canadian bank said full-year results were slightly ahead, its forecasts for FY24/25 were unchanged, and noted that management has outlined a "credible plan" to reinvigorate organic growth in North America.

"We also believe management has derisked the integration impact somewhat with the extension of the synergy timeline to 2026, whilst the upgrade to the overall synergy number is a positive," RBC said. "We continue to see upside, despite the pop in the shares, and back management to execute on its plans."

RBC stated that following the bounce in the share price, the stock now trades on 21x FY24 estimated price-to-earnings ratio, still at a 10-15% discount to the other defensive growth names in the sector, despite stronger profit growth potential if it can execute the synergy plan.

"We have rolled forward our discount cash flow, which results in a small increase in our target price to 590p," it said. "On a SOP basis this valuation assumes a valuation for Pest Control at the top end of the defensive growth names in the sector, albeit at a 35% discount to Rollins."

Analysts at Berenberg raised their target price on wealth manager Quilter from 95.0p to 105.0p on Tuesday, stating that recent reductions in expenses ensured that it will deliver an earnings beat.

Berenberg noted that Quilter had reported its full-year results on 6 March, which brought about a roughly 2% share price jump on the day as its numbers came in ahead of consensus earnings expectations, primarily due to lower-than-expected operating expenses.

The German bank noted that although near-term client flows remained uncertain, given the elevated cost of living and the uncertain market environment, it said the long-term outlook for the UK wealth market was still "attractive", considering household wealth growth and the continuing improvements being made to address the suboptimal consumption of financial advice in the UK market over time.

Berenberg maintained its 'hold' rating on the stock but said its increased price target was driven by a jump in its earnings per share forecasts.

"We update our forecast to account for the latest set of results and outlook, driving EPS increases of 8-9% for FY24-25. This is primarily driven by a lowering of our operating cost assumptions and slightly increasing AuMA," said Berenberg, which added that Quilter currently trades on a roughly 11.0x forward earnings multiple.