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The recovery that Rentokil’s management team has been trying to implement has come well and truly unstuck. The group moved out of the electronic security market to focus on parcel delivery through the ‘transformational’ £210m acquisition of Target Express in 2006. Unfortunately, the transformation that occurred at its City Link parcel division was not the one management or shareholders had hoped for.
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The group has issued another profit warning relating to the division following December’s disappointment. And the problems at the division go a lot deeper than the tougher trading conditions that the group flagged late last year. Indeed, due to poor integration Rentokil believes that City Link may not trade better than break even in 2008, and adjusted pre-tax profits for the group are now expected to be significantly below those reported last year. Broker Citi slashed its underlying pre-tax profit estimate for this year from £222m to £182m, giving EPS of 7.4p (9.8p in 2007).
Meanwhile, the rest of the group has made progress, although the performance of the textiles and washroom division remains less than inspiring. So Rentokil now looks like a potential break-up candidate, especially in light of news that chairman Brian McGowan is to step down. However, poor credit conditions could deter prospective buyers, especially as the most exciting parts of the group have already been sold as part of the restructuring.
| Rentokil (RTO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 83p | MARKET VALUE: | £1.5bn | |
| TOUCH: | 82-83p | 12-MONTH HIGH: | 186p | LOW: 83p |
| DIVIDEND YIELD: | 8.9% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 3p* | NET DEBT: | £947m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2003 | 2.43 | 409 | 16.5 | 6.10 |
| 2004 | 2.18 | 257 | 10.2 | 6.71 |
| 2005 | 2.30 | 190 | 7.5 | 7.38 |
| 2006 | 1.84 | 165 | 7.2 | 7.38 |
| 2007 | 2.20 | 142 | 6.1 | 7.38 |
| % change | +20 | -14 | -16 | - |
Ex-div:16 Apr Payment:23 May *Includes intangible assets of £683m, or 38p a share |
||||
Rentokil’s shares are down 24 per cent since our recent sell tip (109p, 18 Jan 2008), and with a gloomy outlook they are high enough even on a lowly 11 times forecast earnings.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
