Rentokil Initial should sell its City Link parcels business - a long time struggler - and its facilities services division and invest the proceeds in pest control.
That is the view of Panmure Gordon, whose analyst Mike Allen said:
For the shares to advance further, management needs to exit City Link and Integrated Facilities Services and re-cycle the proceeds into its Pest Control division to improve the quality of its earnings in our view. Under this scenario the shares should be worth at least 116p per share and could increase towards 130p depending on how much they get for IFS and what happens to the pension liabilities.
But a rumoured price of £400m for IFS is unrealistic, Allen said, with a figure of £250m a more sensible starting point. Without corporate activity, Allen said the shares, down 0.8p at 97.1p, were overvalued:
Recent share price strength suggests this is not a good entry point for new investors, with downside likely should corporate activity not materialise this year. We are raising our target price from 85p to 97p. However, with limited upside at current levels, we do not think the risk/reward is attractive and maintain a hold recommendation on the shares for now.
