Market Report: Rentokil Initial rises on talk of Raphoe bid

We know that Sir Gerry is eyeing underperforming companies in the FTSE 100, and gossips reckon he is keen to do a deal soon.

As with Compass, Rentokil certainly fits this category. After a series of setbacks, its shares are trading close to historic lows. Any bid by the television troubleshooter's Raphoe Management is likely to be structured as a reverse takeover, but many analysts argued that the support-services group is an unattractive proposition. The company has substantial pension-fund liabilities on top of a £1.1bn debt pile.

And it would be difficult to describe the company as rich in fixed assets. It has a stock-market value of £2.7bn and fixed assets, such as property, worth less than £900m. Should Sir Gerry decide to have a cash element to his offer, analysts believe he may struggle to borrow the money required because of this lack of fixed assets at Rentokil.

Meanwhile, cash flows at the support-services group are under pressure and some City analysts believe they are likely to remain so for the foreseeable future as the company is forced to jack-up investment and shell out growing amounts on pension costs. Given such factors, it was no surprise to see punters slowly lose their ardour for the Rentokil bid story as the session wore on. The stock touched a high of 160p early on but closed at 155.75p, up just 1.5p. More than 44 million Rentokil shares changed hands, but volumes were swollen by the sale by Morgan Stanley of 6.3 million shares at 157p. The US broker placed the line of stock on behalf of an institutional client.

Elsewhere in the blue-chip index, AstraZeneca rose 78p to 2,558p as a slew of brokers upgraded the drugs giant. Among them was Nomura Securities. Moving its rating to "buy" from "hold" it raised its earnings for AZ by 17 per cent and 16 per cent for the next two years. The FTSE 100 continued its march higher, gaining 12 points to 5,282, while the FTSE 250 added 28 points to 7,605.

Cookson leapt 5.5p to 338.5p on vague whispers of a possible bid for the company. SCi Entertainment jumped 14p to 392.5p as dealers reported talk that the computer games developer's recent acquisition of its rival Eidos is going great guns. The cost savings SCi hoped to generate from the tie-up are said to be well ahead of initial hopes. Eidos was saved by SCi from near-certain collapse this year.

CSR fell 22p to 490p after brokers turned more cautious on the semiconductor stock after its near 15 per cent jump on Thursday. ABN, which cut back its rating to "add" from "buy", warned its clients that although CSR is the undisputed leader in Bluetooth technology, the company faces growing competition fromTexas Instruments of the US and France's STMicroelectronics.

Citigroup got investors interested in Autonomy, up 0.5p to 255.5p. The US broker upgraded its stance on the software group to "buy" from "hold" and set a 300p price target on its stock. Citigroup is particularly excited about the prospects for Autonomy's new joint venture in China, which aims to create a dominant search engine along the lines of Google in that part of the world.

Autonomy hopes to cash in on China's burgeoning online consumer market and this month announced a tie-up with China Netcom Broadband Corp (CNBC), a local internet service provider which boasts a pool of more than 110 million users. Citigroup is impressed with the deal Autonomy has struck.

It said: "The terms of the deal look favourable to Autonomy as it implies minimal downside risk to the company and huge upside if in fact the JV is a success." The search engine will be launched in autumn.

Among smaller companies, Griffin Mining put on tuppence to 39p as the company's new broker took it on a tour of City institutions. Lawrence, the animal-feed specialist, gained 19p to 352.5p on the back of forecast-beating annual results. Wyevale Garden Centres rose 2.75p to a fresh all-time high of 551.25p after Trefick Limited, the investment vehicle of the veteran investor Jack Petchey, raised its stake in the group to 7.4 per cent. At the start of the week, Wyevale confirmed it had received several takeover offers.

Finally, investors should keep an eye out for Screen Technology Group next week. The displays technology specialist will list on Monday having raised £8m from various institutional investors.

Screen Technology has confirmed it will use the new money to increase its production capacity and fund a marketing drive.