City & Business: Growing scepticism

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The Independent Online
YOU COULDN'T find a company more different from Body Shop than Rentokil. While Body Shop seeks to please environmentalists, conservationists and anti-vivisectionists, as well as the more conventional trio of customers, staff and shareholders, Rentokil is much more single-minded.

Ever since Clive Thompson arrived as chief executive in 1982, he has repeatedly spelt out his aim. It's not terribly grand, compared with the ponderous mission statements of others. It is simply to lift earnings per share by 20 per cent every year. I don't know of another company that is so specific. It is a compulsion. The company has been known to send out potted plants to journalists with the tag 'guaranteed to grow by 20 per cent each year'. And in this week's Investors Chronicle, Mr Thompson utters the incantation no less than three times in a short interview.

To date, he has met his target in every year except 1985. Earnings per share have grown by an average of 24 per cent a year. The impact on the shares has been dramatic: pounds 100 invested in Rentokil 12 years ago is now worth pounds 2,200. Last week Mr Thompson did it again . . . just. EPS growth scraped in at 20.7 per cent.

Alas, the bigger Rentokil grows, the harder it becomes to pull off this trick. And in a low-inflation environment, the target becomes still more difficult. Mr Thompson remains sanguine, referring me to the huge growth opportunities still to be exploited in the tiger economies of the Far East. But sure as eggs is eggs, that oft-quoted 20 per cent target will one day come back to haunt him.

I'VE LONG been a bit sceptical about emerging markets. In the early 1980s, I edited a newsletter on investment opportunities in China. Business executives by the planeload jetted out to Beijing, optimistic there were deals to be clinched in this land of a billion people. They invariably returned sadder, wiser and empty-handed, each with an anecdote about intransigent, infuriating Chinese officialdom.

The excitement about India now has the same feel as China then. India not only has 870 million potential consumers, but a large, well-educated middle class that looks sympathetically on things British. Barely a week goes by without the Indian government announcing fresh reforms to make the country more enticing to foreign businesses. Last week, the rupee was brought a step closer to full convertibility and the pharmaceuticals industry was deregulated.

Baring Securities reckons that out of 47 stock markets around the world, the Indian is now the second most attractive. And that's after a stonking bull run that has already lasted two years.

Scores of British companies are taking a serious look. I know of one merchant banker working on Indian deals for three different UK companies, including a pounds 200m acquisition. Glaxo, Cadbury Schweppes and Unilever have each recently lifted their stakes in Indian subsidiaries. Shell and Coats Viyella have signed joint ventures there. Interestingly, British Telecom sees India as a far more attractive market than China.

For all the promise, there will be disappointments. Fingers will be burnt. Standard Chartered, a bank with roots in India going back years, famously lost a bundle in the Bombay stock market scandal in 1992. The bureaucracy is mind-boggling, the poverty still horrendous. British companies and investors need to tread carefully.