Broker tips: RBS, ARM, Rentokil

9th Jan 2012 12:14

JP Morgan has upgraded its recommendation for Royal Bank of Scotland (RBS) from underweight to neutral. Any imminent announcements about restructuring its global banking business "are likely to be the start of a significant multi-year period of restructuring of [investment-banking] operations for the UK banking industry," reports the broker.Among global universal banks, JP Morgan deems Barclays and RBS to have a lower valuation than their rivals. The US broker has an overweight recommendation for Barclays.While finnCap has admitted that ARM Holdings is "at the heart of the mobile revolution", the broker has maintained its hold rating on the chip designer on valuations grounds."[ARM's] lower-power IP is virtually ubiquitous in the processors of smartphones and tablets. Its revenues are driven by the surging demand for mobile technology," a finnCap note said this morning.However, the broker points out that with the shares trading at 51 times forwards earnings, the stock is "clearly expensive". Nevertheless, they may be worth picking up on a bad day, the note added.FinnCap stuck with its target price of 575p.Analysts at Credit Suisse have this morning issued a very upbeat research note on pest control and cleaning services company Rentokil. In their opinion the company´s Citylink parcels delivery business unit is now through the worst and set for a return to profitability in the second half of the year. However, the company's strongpoint is its pest control business, which the broker describes as a "high margin, cash generative and stable business." In fact, Credit Suisse estimates that on a standalone basis the division is worth 54p, which equates to 85% of the current share RTO price despite only reflecting 23% of revenues and 42% of earnings before interest, taxes and amortisation (2012 estimate).BC & AB