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Higher interest costs took a chunk out of Rentokil's first half earnings, but they'll be lower in the second half, clearing the way for a recovery in profits.
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The group - whose businesses range from pest control and parcel delivery to cleaning services and laundry - says proceeds from the sale of its electronic security business will cut debt sharply and reduce its interest bill by £15m in the second half of the year, and £30m next year. It paid net interest of £38.6m in the first half, almost double that of a year ago.
Chief executive Doug Flynn adds that the turning point in Rentokil's recovery programme has been reached. His reshaping of Rentokil has created a group increasingly focused on growth sectors such as parcel delivery. Rentokil made 50 small acquisitions in the first half for a total £96m.
The group's contract portfolio grew by a net £29m as deals such as a pest control contract with the Hong Kong government and cleaning contracts at WH Smith and TK Maxx offset the termination of its German hospitals contract and continued portfolio losses in its UK Washroom business. However, the group insists that turnarounds in both the UK Pest and Washroom divisions are progressing.
Citigroup expects full-year diluted EPS of 8.4p (2006: 11.2p), rising to 9.8p in 2008.
RENTOKIL (RTO) |
||||
|---|---|---|---|---|
| ORD PRICE: | 169p | MARKET VALUE: | £ 3,067m | |
| TOUCH: | 169-170p | 12-MONTH HIGH: | 181p | LOW: 145p |
| DIVIDEND YIELD: | 4.4% | PE RATIO: | 22 | |
| NET ASSET VALUE: | * | NET DEBT: | £1.35bn** | |
| Half-year to 30 Jun | Turnover (£bn) | Pretax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2006 | 0.88 | 89.4 | 3.59 | 2.13 |
| 2007 | 1.06 | 65.3 | 2.88 | 2.13 |
| % change | +20 | -27 | -20 | - |
Ex-div:12 Sep Payment:19 Oct *Negative shareholders' funds **Before expected profit of £450m from sale of Electronic Security divison |
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Rentokil appears to be on the way to recovery. However, a prospective PE of 17 for 2008 still looks a little steep. Until more evidence of the turnaround is seen, it looks high enough.
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-IC-1.6.1b-prod - 17/12/2008 12:46:12 - jonathan.furseftb
