Buy fitter, focused Rentokil

The disposal materially improves the group's financial metrics. The group provided pro forma figures which indicated that without the facilities business last year's net operating margin would have risen from 11.2 per cent to 13.1 per cent and the organic growth rate would have been positive rather than negative.

In addition to improving the earnings profile of the group, the disposal also provided a useful wodge of cash to bolster the balance sheet. Prior to the disposal, Rentokil's net debt stood at £1bn. The deal proceeds will be used to pay down some of that debt pile. On Credit Suisse forecasts, the net debt to cash profit ratio will improve from 2.3 times last year to only 1.6 times next year.

The disposal should also boost the group's ongoing cash-generation performance. According to Credit Suisse, Rentokil's free cash flow conversion (free cash flow as a percentage of cash profits) has been 20 per cent below the sector average over the last four years largely due to heavy restructuring costs.

But restructuring and one-off costs are now dropping away. In its May trading update, Rentokil said these costs were £2.1m in the first quarter. That's less than half the £5.1m in the first quarter of 2013. What's more, the group said that restructuring and one-off costs would be around £10m for the full year, which is £10m lower than previously indicated.

Greater financial flexibility should allow Rentokil to maximise the opportunities it has in its three remaining core business areas of pest control, hygiene and workwear. Of the three, it is pest control where Rentokil has the biggest ambitions.

Pest control makes up just over a third of group revenues currently and the group already has solid market positions here. Active in 50 countries, Rentokil is the world number one in commercial pest control and number three in residential. But there is still plenty to go for.

Pest control is a fragmented market. That can mean competition is fierce. But on the plus side, it also gives Rentokil plenty of scope to mop up smaller rivals. The group acquired 12 pest control businesses in 2013 with combined revenues of £9m in countries such as Norway, Portugal and Brazil, and also formed a Saudi joint venture. The pace of acquisitions has picked up notably this year. In the first three months of the year, Rentokil bagged 10 deals with combined revenues of £22m.

That M&A drive will help Rentokil offset some challenges in its end markets. Europe is still tough going as economic recovery remains patchy, with Benelux particularly difficult. Revenues from the Benelux region fell 9 per cent last year and Rentokil sees little prospect of recovery there in 2014.

Nevertheless, the improved financial profile and end of heavy restructuring should keep the group's earnings moving forward. Revenues and earnings will drop this year to reflect the disposals. But Credit Suisse expects margins to steadily improve and earnings growth to hit the mid-teens next year.