Bottom Line: Rentokil's options

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The Independent Online
SECURIGUARD'S initial defence document said Rentokil's pounds 59.2m hostile bid 'fails to recognise Securiguard's potential'. The sequel, released yesterday, observed: 'Rentokil obviously recognises Securiguard's potential but it is not offering a realistic price.'

Most have been suspecting that Rentokil would have to offer 320p to win compared with 309p yesterday.

That, however, was before Securiguard released its interim results. The half-time dividend was lifted by 29 per cent to 4.5p and the company forecasts a 22 per cent increase in the final.

This is off the back of half- year pre-tax profits which, boosted by a surprise profits increase of 135 per cent in the communications division, rose by a hefty 36 per cent to pounds 3.5m when analysts were looking for just pounds 2.8m, up from pounds 2.6m last time.

So the stakes have risen. New forecasts by analysts, if not the company, put Securiguard on a prospective p/e of 14 based on profits of pounds 7m and a 320p exit share price.

Rentokil could therefore bid up to 350p and still win a company with potential for profits growth and Rentokil cost-cutting at just 15 times its earnings. There is nothing to lose from hanging on.

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