Pest controller sees profits tumble

Two contrasting stories in the news today highlight how the value of a business can fluctuate widely.

The value of Rentokil’s business fell by half a billion pounds today when the business announced a profits warning. That represents a fall of around 25% in the market capitalisation (value) of the company. Although the company is best-known for its pest-control actitivities, Rentokil is actually an old-fashioned conglomerate. On other words, Rentokil has a portfolio of businesses, many of which operate in unrelated markets. For example, it has a parcel delivery business (City Link), which is performing particularly badly.

There is some great business studies material in the Guardian article; it would make an interesting basis for a discussion of the strategic benefits and costs of diversification. Break-even is also mentioned, as is speculation that Rentokil is now expected to be subject to a takeover bid.

Contrast the problems of Rentokil with those of Ladbrokes, the gaming and gambling group. It announced a 45% increase in annual profits, largely as a result of increased demand for telephone betting by wealthy gamblers (so-called “high rollers”). The business sections of newspapers are full of stories about businesses hit by consumers tightening their belts. However it seems that the gambling industry is riding the storm quite well. It will be interesting to see during the course of 2008 which other industry sectors demonstrate whether they are “recession-proof”.