Goldbug100 - Rentokil (RTO.L) Adjusted pretax profit up 16.2 pct

Rentokil sales flat, sees tough trading ahead

4 November 2010

Rentokil Initial (LSE: RTO.L - news) used to be known for its ability to deliver earnings growth of 20% or more each year back in the eighties and nineties, but those days came to an abrupt end at the end of the last century, and for four out of the last five years it has seen its earnings per share decline. The company stopped the rot last year, but the fact that the shares have underperformed the market by 15% over the last 12 months indicates that the pressure is back on. Broker Charles Stanley thinks the share price weakness is a bit harsh "as the group has reported strong results for the year to date and has accelerated structural change across the group." The broker is predicting third quarter pre-tax profit of £54m, versus £49.6m the year before. "Although the third quarter will show slower profit growth than in the previous quarters, the group's turnaround remains on track and the valuation is reasonable. In our opinion, the key priority is to deliver profitable growth through organic actions (Rentokil's 5th strategic thrust) and progress on this strategy is eagerly awaited," the broker said. KBC Peel Hunt notes that although Rentokil's results are being announced on Guy Fawkes Day, "we do not foresee any 'fireworks' in terms of explosion of growth vs. last year, and expect progress to be broadly stable." "City Link is likely to remain a key sentiment driver, and while management expect this business to be profitable in the full year, most of the progress will be made during the fourth quarter in our view," Peel Hunt said.