Bunzl PLC and Rentokil Initial PLC get upgrades from JPMorgan as virus

Both companies are expected to be looking at acquisitions as we move into the second half of the year

JPMorgan Cazeove upgraded both () and PLC () to ‘overweight’ after recent encouraging news.

“Bunzl is back,” said analyst Sylvia P Barker in a note to clients on Friday, highlighting earnings upside and M&A optionality going into the second half of the year and lifting her recommendation to ‘overweight’ from ‘neutral’.

READ: Bunzl motors higher as first half trading comes in better than expected

Last week’s half-year trading update from the distribution specialist was better than expected, helped by clients stocking up on products.

While means the second half will be tougher, Barker said she “cannot help but be positive into H2 2020 given we see positive risks to earnings while the balance sheet should enable Bunzl to pay the 2019 final dividend that had been put on hold and also restart M&A”. 

Forecasts for longer-term growth were increased slightly and a more bullish stance on M&A led to the price target being upped to 2,350p from 2,000p.

On pest control and hygiene services provider Rentokil, Barker said she “lost our nerve after the COVID-19 update and moved to ‘neutral’ as we saw the stock as riskier than, for example, on the same multiple,” given the exposure to hotels, restaurants and cafes during the lockdown. 

READ: Rentokil Initial trains 7,000 staff for deep clean services amid pandemic

“However, recent newsflow has been more supportive than we feared. We still see risks to receivables and the P&L from client defaults, but we cannot ignore the potential upgrades to 2020 consensus and we believe Rentokil is likely to resume M&A during H2.” 

The group is seen as a “long-term winner” with positive earnings momentum, with forecast changes leading to the share price target increasing to 560p from 430p.

Read More: Bunzl PLC and Rentokil Initial PLC get upgrades from JPMorgan as virus

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