Upbeat Rentokil to keep 'non-core' BET operations BET operations

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The Independent Online
Rentokil yesterday surprised the City by announcing it had no plans to make any large disposals of businesses as a result of its pounds 2.3bn acquisition of rival business services group BET earlier this year.

The news came as Rentokil, which is to adopt BET's main brand name by changing its own name to Rentokil Initial, said it would complete the integration of the complementary BET businesses over the next six months. Sir Clive Thompson, chief executive, said they were very pleased with what they had found at BET. "The upside potential is excellent."

The upbeat mood combined with news that Rentokil had again beaten its 20 per cent growth target in the first six months of the year, sending its shares 10p higher to 419p yesterday.

But analysts said the decision to retain nearly all of the BET operations could hit Rentokil's rating in the market. The group had indicated during the bitterly fought bid battle that certain of BET's peripheral businesses would be considered for disposal. Sir Clive said yesterday they now believed that non-core areas like plant hire, distribution, resort management and conference centres, could add sales and margin growth in future.

Nyren Scott-Malden of Barclays de Zoete Wedd said: "This makes Rentokil a very different animal to what I was expecting." Plant services is a substantial business, chipping in profits of pounds 52.9m last year, he pointed out. "This is very un-Rentokil. They are very asset-intensive, non-people- oriented businesses."

Their retention would reduce the quality if not the quality of earnings and would hit the group's rating, he believed. Although Rentokil would probably continue to produce 20 per cent earnings growth, the shares did not deserve their current premium against the market of nearly 60 per cent. He is maintaining his full year profits forecast of pounds 353m, but may upgrade next year's by pounds 20m to around pounds 474m.

Half year figures to June, including two months of BET, showed pre-tax profits soaring from pounds 99.2m to pounds 135m. Earnings per share rose 20.9 per cent to 7.87p, out of which an interim dividend of 1.48p is being paid, up 20 per cent on last year.

Integration had cost pounds 2.5m in the first half, with further restructuring to come in the second. The group is also likely to write down BET's assets.

Further integration would be completed over the next few months or at most the next six months, Sir Clive said. But he suggested that BET had allowed too much freedom to its subsidiaries and set undemanding standards. Rentokil would impose tighter controls.

Stripping out a pounds 15.1m contribution from BET, the original business saw its profits rise 20.4 per cent to pounds 119m. Mr Thompson said UK turnover, broadly flat at less than pounds 118m, had been hit by sluggish demand for timber treatments, one-off jobbing contracts and in the fire protection business.

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