"We fail to see the logic of a break-up at this level," the German broker said. It believes that Rentokil's results - due in three weeks - will be poor and are likely to show little sign of a turnaround at the troubled support services group. Dresdner is convinced that profit margins at Rentokil remain pressured and, as a result, cash flow will be weaker.
According to the broker, a company suffering such problems is very unlikely to fall victim to a leveraged buyout bid. And the fact that Rentokil has a high level of debt, about pounds 1.2bn in Dresdner's estimation, makes such a scenario even more improbable. This state of affairs at the group will not change any time soon, warned the broker, which urged investors to sell the stock. It predicts that in the coming years Rentokil's margins will continue to be squeezed as it is forced to jack-up investment and shell out a growing amount of cash to cover pension costs.
Meanwhile, Corus held steady at 55.5p amid strong denials that the steel maker is in talks with its German rival ThyssenKrupp. Spokesmen for the companies poured cold water on suggestions that the steel sector duo are in talks aimed at a tie-up. But punters did not completely do away with betting on takeover stories. Many piled into Sainsbury's, 5.5p better at 292.5p, on hopes that the ailing supermarket group will find itself on the receiving end of an approach in the near future.
Vodafone rose 2p to 137.75p as Merrill Lynch ushered investors into the stock. It urged them to abandon BT Group, down 0.75p to 203.5p, and back Vodafone, which boasts a far more impressive growth rate. BT is due to unveil third-quarter results next week and the US broker predicts the numbers will show that revenues remain under pressure at the fixed-line telecoms operator.
InterContinental Hotels, up 13.5p to 676.5p, was buoyed by strong results from its US peer Starwood. The American hotels operator delivered a fourth- quarter net profit of $100m (pounds 53m), up from $87m for the same period last year. Starwood, which owns the Sheraton brand, also raised its forecasts for the current year, showing that the US market remains buoyant. This bodes well for InterContinental as the group generates about half its profits across the Atlantic.
SIG was not so lucky, falling 19.5p to 602p, after Morgan Stanley started coverage of the building materials group with an "underweight" stance. After two years of strong share-price gains, the US broker sees no further upside in the stock from current levels. SIG shares have also been supported by hopes that the group could be the next in the sector to find itself being bid for. Morgan Stanley, however, sees little chance of such a scenario coming to pass any time soon.
Ashtead rose 1.25p to 80.25p after its peer Atlas Copco reported accelerating volumes and rising prices in its US tool-hire businesses. Analysts believe that if Altas is doing well then so should Ashtead's all-important Sunbelt division in the US. Evolution Securities upgraded its rating on Ashtead to "buy" from "add".
Lower down the pecking order, Ukbetting improved 6.25p to 47.74p as UBS raised its stake in the company to 17.9 per cent. It was unclear where the Swiss bank holds the stock on its own account or on behalf of a client. Monster Mob jumped 39.5p to 307p on whispers that a bid for the ring-tones group could be just around the corner.
Galliford Try ticked 2.25p better to 58.5p as a number of brokers pointed out that the company is undervalued compared with its peers. Entertainment Rights climbed 0.5p better to 17.75p on talk that a recent deal between the children's characters group and the TV channel Cartoon Network has greatly improved its performance.
Finally, Iomart dropped 6p to 133p after Bill Dobbie, a director at the software specialist, sold 2 million shares at 132p each to satisfy institutional demand for the stock. Iomart has been an awesome performer during the past 18 months. Back in 2003 its shares traded at just 4p.
One market watcher wondered why these institutional investors, who in many cases manage people's pension funds, had not demanded Iomart shares when they traded at 4p but instead waited for them to register a 3,300 per cent rise before buying into the company.Reuse content