Investment: Rentokil finally slips up on the percentage play

SO, FAREWELL then, Mister Twenty Per Cent. For the past 13 years Sir Clive Thompson, chief executive of Rentokil, has consistently met his self-imposed target of raising the services group's earnings per share by at least a fifth. But in the first six months of this year Rentokil failed. And the title Mister 18.7 per cent just doesn't have the same ring to it.

To be fair, Rentokil didn't miss by much. Exclude the effects of the strong pound, which depressed the value of overseas profits, and earnings were up 26 per cent. But Sir Clive isn't making any excuses. And he is doggedly sticking to the target even though he admits it has become a bit of a millstone.

This looks unrealistic. Although Rentokil's profit performance was respectable, sales were not. Even allowing for exchange rates, revenue growth in the UK and Asia-Pacific was pedestrian. In North America sales actually fell as Rentokil sold unwanted businesses and pulled out of low-margin contracts. Only continental Europe, emerging from a prolonged downturn, lifted the gloom with a 17 per cent increase.

Sir Clive reckons Rentokil can meet its target without large acquisitions. But operating margins can only stretch so far and sooner or later the company will need a repeat of its 1996 acquisition of BET, with the resultant cost savings and efficiency gains.

Given its size, however, Rentokil will find suitable deals a lot harder to come by. And the suspicion remains that meeting the earnings target will be more about questionable accounting policies - Rentokil has decided not to write off goodwill on acquisitions against profits - than true growth.

Rentokil shares slipped 14p to 365p yesterday and are down 20 per cent from their June high. But they still trade on a chunky multiple of almost 30 times forecast full-year earnings. Given the uncertainty over Rentokil's future growth, the shares are high enough.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss