Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
What Intertek’s revenue rally means for its premium rating

FTSE 100 multinational inspection, testing and certification company Intertek (ITRK) started life on the markets as a marine surveying business in the 1890s but is now so much more.
The company is among other things the largest tester of consumer products in the world, with over a 1.000 laboratories in a 100 countries.
Because these services are often driven by regulation, revenue and in turn profit and cash flow is relatively predictable. This has helped underpin a consistent track record of dividend growth.
The company recently released an update for the four months to 30 April to tell investors how things have been going so far this year.
CEO Andre Lacroix seems upbeat on his firm’s 4% organic growth rate during the time frame. Analysts, some of whom have been quite sceptical of the company’s recent results, seem to share his enthusiasm.
Shore Capital analyst Ben McSkelly says the statement seems to confirm full year guidance ‘hinting at the top range’.
McSkelly had previously questioned whether some of the charges the company had written off as ‘exceptional’ were in fact one offs or actually ongoing business improvement costs.
The company is targeting moderate margin expansion and strong cash conversation so bringing in revenue of £861.2m in the first four months is a decent start.
However, half year results on 7 August may get a more sceptical hearing if the company has again included a load of exceptional charges.
ADDRESSABLE MARKET
The global quality assurance market is worth $250bn and Intertek is a big player in it, with the company’s main rivals situated overseas. However, this strong market positioning is already reflected in a premium valuation. Based on forecasts from JP Morgan Cazenove the stock is on a 2019 price-to-earnings ratio of 26.3-times.
Reuters peer group average trades on 16.4-times so maybe this is why the company has so many analysts sitting on the fence. Only two buy recommendations versus 10 holds says something about how the market views the stock.
A premium is not justified simply because it might be the only company working in this exact sector in the UK. Fund managers have access to stocks in markets all around the world.
Intertek does have a record of upping its dividend payment every year, it has done so for the last decade. The company is targeting a 50% payout ratio for 2018 and JP Morgan has taken them at their word and factored this in to estimates although it notes ‘our forecast is well above consensus’. (DS)
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.