Global testing and certification firm Intertek (ITRK) has delivered a reassuring 10-month trading update with revenues showing an improvement since June.
However given the stock’s premium rating investors have given the news a rather muted response, marking the shares up just 1% to £47.
Thanks to a pick-up in sales at its two biggest divisions, Products and Trade, and more stable revenues at its smaller Resources division, group turnover is up 0.5% over 10 months to £2.3bn against a 1.8% drop in the first half.
Intertek’s Product division tests and certifies everything from trainers to food to buildings and has seen ‘robust’ growth across all of its business lines and geographies with revenues up 3% over 10 months against less than 1% in the first half.
Increased regulation on consumer products, greater focus on food safety and sourcing and new areas of demand like ‘eco-friendly’ buildings and electric power-trains all play to Intertek’s core strength.
Its Trade division also showed an improvement in sales in the last few months with turnover only down 2.4% over 10 months against a drop of 4.7% in the first half. Within Trade, revenues at its Agricultural business are still tracking below last year as exports in some markets have slowed.
The Resources division, which has struggled with lower demand from the oil sector in recent years, appears to be turning round thanks to stable revenues in the energy unit and an improvement in testing demand in minerals.
PAUSE FOR BREATH
Intertek has been a great growth story for the last few years but it feels as though it is ‘marking time’ and while it is on track to meet its full-year targets there’s little to shout about for now.
There’s undoubtedly more growth potential given the total market for its services is $250bn a year and only 20% of the market is outsourced.
The Alchemy acquisition this summer will boost Assurance revenues not just from the company’s existing client base but it allows Intertek to expand the range of services it sells to its own customers.
Returns on capital employed, cash-flow generation and cash conversion all remain well ahead of the average for UK business service companies.
However, even after the pull-back from their summer highs of £60.00 the shares are still trading on 23 times next year’s forecast earnings which some investors may view as a premium rating.to l
Read our recent Under The Bonnet article on Intertek to learn more about its business and how it makes money.
