Broker tips: Rentokil Initial, Breedon, Bodycote

(Sharecast News) - UBS upgraded Rentokil Initial to 'buy' from 'neutral' on Thursday and lifted its price target on the stock to 540p from 430p. The bank noted it's been broadly cautious on Rentokil since its 2022 Terminix acquisition, but said that last year's strategy reshaping means it now sees realistic potential for volumes to inflect in 2026, ending around three years of share losses.

"We expect more actions to then accelerate growth under new management, but the North American cost base already looks well-invested given issues over the past few years and so believe this is achievable for little incremental cost," UBS said.

The bank said it sees the North American pest business accelerating earnings over the next 12 months and forecasts a 7% increase in group EBITA compound annual growth rate for FY26 to FY28, with upside from re-accelerating M&A or other strategic options as profits stabilise.

UBS highlighted that this leaves Rentokil NA on an implied circa 17x EV/EBITA, versus similar US service network peers on around 25x.

Analysts at RBC Capital Markets lowered their target price on construction materials firm Breedon from 525p to 500p on Thursday, but reiterated its 'outperform' rating as it said the stock was "poised for growth".

Breedon said that with little help from the markets in 2025, Breedon focused on "controlling what it could control" - operational efficiency. Breedon cut costs, "tweaked and improved" working practices and RBS said there was potential for "more of both" in FY26.

The Canadian bank also noted that guidance for the full year was held and "warmly received" by the market, but also stated that "for all of us the crystal ball for 2026 is somewhat hazy and cloudy".

However, RBC said Breedon's performance in FY25 demonstrates that it can "perform in challenging times", but volume growth was what was required to "make the shares really sing".

"We update our model to reflect FY25 actuals and updated FY26 guidance. Our FY26 EBITDA of £283.3m is in line with current company consensus of £283.5m, falling 0.9% vs our prior estimates reflecting a lower GB pricing assumption ('flat' expected in FY26 by management) along with our slightly higher cost inflation assumption, partially offset by continued GB cost measures (33% of £20m expected in FY26)," said RBC.

"Higher depreciation (FY26 guide of £120m vs RBCe prior of £110m) and net finance costs (FY26 guide of £35m vs £30m RBCe prior) mean that our FY26 EBIT and PBT estimates fall 7% and 11% respectively. Accordingly, our price target (derived from a combination of FY26-27 P/E and EV/EBITDA multiples) falls 5% from 525p to 500p."

Elsewhere, Bodycote slumped after RBC Capital Markets downgraded the stock to 'sector perform' from 'outperform' as it said the valuation was now back in line with history.

RBC Capital, which kept its price target at 775p, said that strategically, the business is making sound progress towards its 2028 20% margin target.

"However, end markets are still mixed somewhat limiting organic growth," RBC said.

RBC said Bodycote has made good progress improving its end market mix and that exposure to high growth segments should go from 35% in FY23 to 45% post-site disposals and eventually target more than 50% by 2028.

However, it still sees significant exposure to structurally challenged markets as a long-term headwind to achieving Bodycote's targeted mid-single digit growth rate.

"With the share up strongly from its lows and the P/E at 15.4x26E now in line with the 10- year average, we see more limited near term upside potential."