Rentokil Initial was a leading mid-cap riser on Wednesday as the London market rebound ran into a second day.
Gone are the days under chief executive Clive Thompson when the support services company displayed an enviable record of earnings growth. Nicknamed “Mr 20 per cent”, Mr Thompson was ousted in a 2004 boardroom coup and Rentokil has struggled to regain its former momentum.
However, Merrill Lynch lifted its recommendation on the stock from “neutral” to “buy” and said that “after three-and-a-half years of declining profits and downgrades, we believe Rentokil’s profits momentum is at an inflection point”.
It expected Rentokil to return to growth in the second half of 2007.
Merrill also said a sharp fall in Rentokil’s share price from its May peak “would appear to be at odds with its defensive qualities”. More than 65 per cent of Rentokil’s revenue is backed by contracts and its average customer retention period is more than eight years
Rentokil, which reports figures this month, closed up 6.2 per cent at 167p.
In the wider market, leading stocks rose sharply amid talk of a significant programme trade and rumours of an unwinding of short positions by a leading hedge fund.
The FTSE 100 closed up 85.1 points, or 1.4 per cent, at 6,393.9, taking its gain over the two-day period to more than 200 points. The FTSE 250 rose 219.8, or 2 per cent, to 11,455.0. Its rise over the past two days has been more than 400 points.
F&C Asset Management, up 14.5 per cent to 217½p, was the leading mid-cap gainer as dealers cited hopes of a takeover.
F&C is 52 per cent owned by Friends Provident, which is itself subject to bid speculation. Activist investor Dawnay Day Group and private investment group Berggruen Holdings this week revealed a combined 14.2 per cent interest in F&C via a derivative position. Aberdeen Asset Management is known to have cast an eye over F&C in the past.
Friends Provident rose 2.5 per cent to 197¼p after well-received figures while Standard Life, which reported on Tuesday, gained 4.6 per cent to 341p.
Talk that National Australia Bank was interested in Alliance & Leicester sent the lender 6 per cent higher to £11.07.
The speculation was fuelled by talk that NAB, which owns Clydesdale Bank and Yorkshire Bank, had suspended its share buy-back programme in Australia.
However, NAB denied this was the case. Observers also noted that A&L bought back 200,000 of its own shares on Wednesday, which it could not do if it was in talks.
Better-than-expected interims from Royal & Sun Alliance sent rival insurer Admiral Group 10.3 per cent higher to 940p. RSA rose 3.7 per cent to 141p.
Emap, owner of Heat magazine and Magic FM radio, rose 3.4 per cent to 867½p on reports that Guardian Media Group and Apax Partners were planning a £2bn bid for the company.
Andrew Walsh, analyst at Bridgewell, said such a deal made sense and lifted his stance on Emap from “neutral” to “overweight”.
He said a combination of Apax’s Incisive Media operation and the business-to-business arm of Emap's would be a “bold but logical next step in Incisive’s b2b consolidation strategy,” adding the Guardian “would certainly be interested in Emap’s radio assets following its careful, patient roll up in this area”.
Ashmore Group gained 8.8 per cent to 236p as Evolution Securities reiterated its “buy” rating and 350p price target on the investment manager.
“Market turbulence has focused on the financial sector and Ashmore has suffered substantial collateral damage. We believe its fundamental attractions remain unscathed and investors who missed out at the IPO can now get in back at the ground floor,” analyst Jason Streets wrote.
Smiths Group lost 2.8 per cent to £10.08 as the defence group admitted that the weak dollar would have affect earnings while engineering specialist FKI lost 5.6 per cent to 100¾p as bid talks, understood to be with Blackstone, the private equity group, ended.
Investec kept its “hold” rating and said: “We would avoid FKI at this stage as we believe mixed current trading and potential corporate activity could both disappoint the market.”