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Rentokil is cleaning up after American buy-out

THE Duke of Wellington was a bit of a well-known pigeon fancier in the middle of the 19th Century. He claimed to have the world champion racing pigeon in his loft; the sturdy bird having a 5,000 mile marathon flight to its credit.

So when Queen Victoria started to worry about a sparrow infestation of the newly constructed Crystal Palace in London she beat a path to the famous general and asked his advice on the matter. His brief reply was "Sparrow-hawks, Ma'am".

Crystal Palace is long gone but if a similar problem were to crop up these days, the chances are that the remedy would be "ring Rentokil". Indeed, the pest control company has been known as the royal rat-catcher in its distinguished past.

However, the company is nothing like the energetic conglomerate it once was.

Some years ago when Rentokil was being run by the unreconstructed Thatcherite Clive Thompson, it employed 140,000 people and was worth £12bn. Now it employs less than half that and is worth £1.74bn (€2bn). It is still an interesting company (sales of £2.6bn), with very interesting set of problems to tackle if bed bugs and keeping the office loo smelling sweet is your idea of interesting.

The full name of the company is Rentokil Initial. The Initial business includes textiles (linen services to hotels, restaurants and hospitals) and hygiene services (air freshners, handryers, and soap dispensers). Rentokil was originally set up at the beginning of the 20th Century by a chemist who was charged with getting rid of the death-watch beetle from London's Westminister Hall. The name Rentokil came about due to trade objection preventing the name Entokil; Ento meaning insect in Greek. The unfortunate chemist died, in his own lab, from lethal gasses.

The company got a great spurt after going public in 1969 and when Thompson took over, the world opened up. But the market can be an unforgiving place and eventually Thompson had the door pointed out to him.

After years of problems, three hot shots who had previously run the chemicals giant ICI and sold it to the Dutch company AKZO, were lured to Rentokil in 2008.

Rentokil has proved to be more difficult to manage than it first appeared to its new managers. While the company operates in 55 countries, France, Germany, UK, Ireland and the Benelux countries, provide 40pc of sales. Interestingly, pest control, hygiene and textiles account for 60pc of total sales. Its parcel business, which represents 15pc of sales, has been a significant drag on the company for the last five or six years.

This business called City Link Parcels had what were, on the face of it, good contracts with the likes of John Lewis and Marks and Spencer. With the volume of internet business from these retailers booming, it would have been expected that this business would throw off decent profits.

That hasn't happened. Recent results show an operating loss of £26.4m. Market observers believe that this company will be sold off sooner or later.

American bed bugs, on the other hand, have been a blessing for the company.

It seems there has been a bit of an epidemic of these nasty creatures in US hotels and schools. Rentokil recently bought an American extermination firm that targets these little lads and it has been "cleaning up", if you forgive the pun.

It found another really good American business in Ambius, which equips offices with all the lavish greenery it needs to make US working conditions bearable. It is also the largest of its kind in the US. In Britain Rentokil has a comprehensive portfolio that ensures a client will not have to worry about smelly loos, clean hands, unwelcome rodents, or the need for an attractive yucca plant in the corridor.

The Duke of Wellington might not, however, be happy with another current Rentokil growth market in London – pigeon-control! Long-term holders of Rentokil shares have suffered.

However, today its shares are 97p up from a yearly low of 69p, the p/e is 18 and the dividend yield is two. Rentokil is not the sexiest business in the world but apart from Siberia there will always be a demand for its products.

Dr John Lynch is a former honorary chairman of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.

Irish Independent