Broker tips: Rentokil, Liontrust Asset Management, Ryanair, IAG
By Iain Gilbert
Date: Thursday 20 Jan 2022
(Sharecast News) - Citi upgraded Rentokil Initial to 'buy' from 'neutral' on Thursday, arguing that the proposed acquisition of US rival Terminix could propel the company into the number one slot in US pest control.
The bank said the move would give the firm an estimated market share of 25%, followed by Rollins with 20%, Ecolab with around 5% and Anticimex with 4-5%.
"Based on State by State branch footprint analysis, we feel confident that Rentokil can significantly outperform management's synergy target, possibly 2x," said Citi, which has a 650.0p price target on Rentokil's shares.
Rentokil announced in December that it had agreed to buy Terminix in a $6.7bn deal. The firm said the combination was expected "to create significant value, enhance long-term growth potential, be highly cash generative and present a compelling industrial logic".
Analysts at Berenberg lowered their target price on asset manager Liontrust from 1,965.0p to 1,850.0p on Thursday after the group revealed increased market volatility at the start of 2022 had caused assets under management and advice to fall to roughly £36.0bn.
Berenberg said that Liontrust had reported "decent" third-quarter 2022 asset gathering for the three-month period to 31 December, in line with its expectations, but given the company's high exposure to UK retail, it stated it was "cautious" on 2022 inflows for the firm, as it said retail investors can "quickly pull back" from investing in periods of market volatility.
The German bank highlighted that said volatility had, in turn, led it to decrease estimates for the firm.
"Liontrust's shares are down by circa 18% year-to-date, but still currently trade on circa 16x FY 2022E, at the top end of their historical range of 11.5-16.5x. While we are positive on the company's growth and exposure to sustainable assets, we view the shares as fully valued at these levels," said the analysts, who reiterated their 'hold' rating on the stock.
JPMorgan Cazenove upgraded Ryanair but downgraded IAG on Thursday as it took a look at the European airline sector.
The bank lifted Ryanair to 'overweight' from 'neutral' and upped its price target on the stock to €21.0 from €16.40, stating that by year-end March 2025 it expects the airline's passenger numbers to be around 40% higher than in March 2020.
"With its ultra-low costs, we also expect RYA to generate strong EBIT margins and free cash flow as end markets recover," JPM said.
"RYA also has by far the strongest balance sheet in the sector. We see circa 28% upside potential to the ordinary shares. Please note that investment in the ORDs is restricted to EU-citizens, and the RYA ADRs trade at a circa 20% premium to the ORDs due to lower liquidity."
Looking at British Airways and Iberia parent IAG, the analysts downgraded the stock to 'neutral' from 'overweight' but said IAG should benefit from the re-opening of transatlantic travel and a pick-up in corporate travel through 2022.
"However, with 2021E net debt of circa €13.0bn, the company may need to issue equity at some point," it said. "We don't think there is an immediate need for this given IAG has circa €12.0bn of liquidity and no major near-term debt refinancing."
But with the possibility of an equity issuance rises in the event of further share price recovery, in JPM's view, which it thinks will likely cap the upside potential of the shares at this stage.
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