FTSE in-depth: Rentokil pest faces disposal

By Geoff Foster for MailOnline
Updated: 03:36 EDT, 26 November 2009

The bait of an imminent disposal saw hungry punters nibbling away at shares of pest control-to-washroom services group Rentokil Initial.

Geoff Foster: Buyers returned for blue chips.

They added a further 3.3p to 104.2p amid growing speculation that its loss-making City Link parcels business is to be sold to a private equity buyer.

Shareholders would be delighted to see the back of City Link, which has failed to deliver over the past year or so. Indeed, it was its dire trading performance which forced Rentokil to hit the market with four disastrous profit warnings in the space of just eight months last year.

One alert blamed a fall in consumers buying Christmas presents over the internet. City Link's profits are skewed towards the final quarter when delivering to the consumer, rather than businesses, becomes more important. It would therefore now appear to be a good time to say cheerio to City Link before any other possible festive disappointments.

City Link is expected to incur a full-year operating loss of around £7m. Management have done a good job in stopping the rot but would obviously love to wash its hands of it.

Analysts were positive about Rentokil following recent third-quarter figures. Oriel Securities moved its pre-tax profit forecast for this year to £156m from £149m. Analyst Hector Forsythe reckons the share price has the potential to rise above 170p on a two-year view.

Buyers returned for blue chips pushing the Footsie 40.85 points higher to 5,364.81. Dealers were delighted to hear Federal Reserve officials overnight express confidence in the sustainability of the US economic recovery, and repeat the fact that US interest rates will remain low for the foreseeable future.

The bullish mood continued when the UK economy showed a smaller decline of 0.3% between July and September, than the 0.4% forecast. Ahead of today's Thanksgiving holiday, Wall Street opened 36 points better following better-than-expected economic data. The number of US workers filing new applications for jobless insurance fell last week by a surprisingly small amount to the lowest in more than a year.

After the gold price reached a record $1,185, or around £737 an ounce, the Footsie's only pure gold miner, Randgold Resources, jumped 150p to 5,190p.

Clive Cowdery's acquisitive insurance group Resolution cheapened 2.25p to 86.54p on rumours of a rights issue. It is believed to have Legal & General (0.35p easier at 84.75p) at the top of its shopping list but needs to raise more cash to finance a deal.

As speculation about a £4-a-share cash bid by GDF Suez of France for International Power intensified, shares of the international electricity generator touched 289.4p before closing 6.9p better at 282.5p. Bank of America Merrill Lynch says the French group has the balance sheet to make such a move and a deal makes sense both from a strategic and financial standpoint.

Spirax-Sarco Engineering sprang to life with a gain of 29p to 1,120p. UBS generated interest by upgrading to buy from neutral. It expects to see about 5% organic growth in 2010.

Online gaming group PartyGaming rose 4.9p to 260.2p. The US House of Representatives Committee on Financial Services has announced a hearing on December 3 to discuss committee chairman Barney Frank's HR 2267 Bill to regulate US online gaming.

Deutsche Bank says this is positive news for PartyGaming. A regulated US market could be worth £5.6bn in year one and £10.6bn by year three, assuming no state opt-outs and no sports betting.

Disappointed that Heritage Oil will not now be rubbing shoulders with the Footsie elite after calling off its Turkish merger with Genel Enerji, investors sold the shares down to 436p before they closed 20.1p off at 447p. Heritage kiboshed the deal by selling its 50% stake in two Ugandan oil wells to Italian firm Eni for up to £900m.

Recruitment company Harvey Nash plummeted 8p to 36.5p after warning trading remains challenging.

Punters favourite Gulf Keystone, the Kurdistan oil explorer, lost 7p to 88.25p on fundraising fears.

A sweetened 75p-a-share offer from Guy Hands' Infinis Energy for British renewable energy firm Novera (up 11p to 76.5) was immediately rejected by the latter's board.