Rentokil Initial’s new management team has lost none of its power to enchant. Shares in the troubled parcel delivery to pest control conglomerate rallied last week when the company issued its third profit warning in a row, and ticked up again this morning when it confirmed that the dividend - which provided a historic yield of nearly 8 per cent - would be cut.

That advance is partly a reflection of the extent to which a slashing of the pay-out had been priced in. Dividend cover was already thin before the profit downgrades, but with Rentokil now forecast to produce earnings per share of 6.4p this year - against the 7.4p per share dividend it paid out last year - clearly something had to give.

But it is also an indication of the confidence that the City has in the company’s new chief executive, finance director and chairman - who overhauled ICI and sold it to Akzo Nobel - to turn around their new charge.

As yesterday’s first-quarter figures show, City Link, the parcels business, remains their biggest challenge. The division has swung from a £25 million profit to a £15 million quarterly loss. Analysts expect a £35 million loss for the full year, and a return to modest profitability in 2009. However, the disastrous post-acquisition performance of Target Express, bought two years ago for £210 million, suggests that Rentokil will have to make substantial write-downs to its balance sheet valuation later in the year.

Excluding parcels, Rentokil’s first-quarter profits were modestly ahead, which provides a degree of consolation. However, operating margins were down - from 10.3 per cent to 9.6 per cent - while the UK washrooms business continues to struggle.

All of which suggests that shareholders hoping for a quick fix may be disappointed. Not least, because a slowing economic environment may put additional pressure on an already weakened business - particularly its textiles and cleaning operations, traditionally considered its least defensive.

The biggest near-term hope remains the new team’s incentivisation package - the first tranche of which kicks in when the shares break through 120p, and stay there for at least six months.

Given the ability of the shares to withstand recent shocks, 95p, yesterday’s opening price, is likely to provide a floor. And at 10 times next year’s earnings - assuming a recovery in profitability to 2007 levels - the shares look reasonable value.

But all apart from the most patient investors might want to await August’s first-half results - which should contain details of both the new dividend policy and hard evidence of recovery - before buying back in.

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