Fly in the ointment at Rentokil

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The Independent Online
Results from Rentokil Initial last week sent the shares into a spin: they had fallen 53.5p by Friday to close at 404.5p. The worst fear of investors - that the pounds 2.1bn acquisition of BET may have finally put paid to the days of heady growth - seems to have come true. Sir Clive Thompson, the chief executive, is adamant matters will improve. But it looks as if the sensible action for long-term investors is to take profits. Expect further selling in the weeks ahead.

In biotech, the goings-on at different companies should serve as a warning to all armchair investors: if it's a quiet life you want, don't go anywhere near this sector. By Friday, shares in Shield Diagnostics had climbed 560 per cent since the start of the year. Then they slumped by 140p to 665p. The reason for the buying surge was the company's hint that its Activated Factor Twelve could become a screening test for heart attacks. The most common test at present is cholesterol, and since 500 million of these tests are performed every year, this is clearly a big market. What sparked the retreat was the company's lame announcement that a trial in the US, in progress for the past 10 years, had been mishandled and could produce "misleading conclusions" on AFT.

Investors who bought before the current excitement still have a heady profit. But the musical chairs has now stopped with an unpleasant bump.

As if to ram the point home, shares in Scotia Holdings dived from 570p to 445p last week. The collapse followed a refusal by the authorities to recommend marketing approval for Tarabetic, a drug to treat diabetic neuropathy. Scotia says this is only a temporary setback, but it is proof that this remains a sector not for widows or orphans.

Also making waves last week was Acorn Computer Group, whose shares rose 30p to 232.5p. Speculation in the market covered the gamut of stories, from the emergence of a bidder to a tie-up with industry leader Intel for its Pentium chip. The facts are simpler, and more appealing.

The company announced its full-year figures on 6 March, when it announced a 21 per cent drop in sales to pounds 30m. However, chief executive David Lee is confident about the road ahead.

He dismisses a rumour of any tie-in with Intel. However, ARM, the 45 per cent owned designer of microchips, is continuing to trade well. Closer to home, the company has changed its licensing agreement with Oracle for developing networking computers. Acorn can now license its technology in this area directly to other companies and not, as before, exclusively to Oracle, which would then sub-license it. This brings potentially large benefits to Acorn.

Next Thursday dealings begin in shares of KBC Advanced Technologies, after a pounds 34m placing through Cazenove. The company helps oil refiners to boost their margins; KBC reckons it can identify profit improvements of between US$0.20 and US$0.75 for every barrel of crude oil that is processed, for little or no capital expenditure by the refiner. For the average refinery processing 125,000 barrels of oil a day, that translates into higher profits of US$9m to US$33m a year.

The simple attraction of its services underscores why the company can boast an attractive track record. Pre-tax profits rose to pounds 6.1m in 1996, up from pounds 2.7m the previous year, on sales of $27.3m (pounds 17.6m). Expect strong interest from the institutions.

Six directors at Standard Chartered Bank sold 399,999 shares between them last week at 897p each. The disposals were a mixture of option exercising and sales of existing share holdings. Given that directors have quite tight windows when they can deal in the shares of their companies, this would suggest some sort of consensus that now is a good time to take profits. From about pounds 1 five years ago, the shares have soared to their present level of 846.5p. The bank, which is strong in the emerging markets of Asia, has long been touted as a takeover candidate. Even so, it would seem that even the board reckons the recent rises - almost pounds 2 since late 1996 - are excessive.

This week sees a stream of important figures. On Monday alone, Argos, Bunzl, English China Clays, Hammerson and Pearson announce full year figures. On Tuesday, the Government announces the February PSBR, which is expected to show an increase of pounds 3.8bn. These figures will almost certainly determine the direction of the market for the next month or so - before election fever really sets in.

RICHARD PHILLIPS

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