These results may be the catalyst Intertek (ITRK) needed to reverse the long decline in its share price over the past 18 months. Prior to the announcement, the shares were down 17 per cent over the year. A 9 per cent bounce in the two days following the earnings release has clawed some of that underperformance back.
The key positive was the increase in the operating margin. The global product testing and certification company reported a 30 basis point improvement in this key metric to 14.9 per cent, driven by the restructuring of its business and an exit from less profitable contracts. The improvement helped rebuild confidence that had been shaken by the 60 basis points drop reported at the previous set of results.
The exit from low-margin contracts did hold growth back. Organic revenue fell 0.5 per cent at constant currencies in the first half. But management tells us this metric should turn positive in the second half. The team also believes Intertek can hit high single-digit organic growth in the next couple of years. "Our portfolio can deliver this," says chief executive Wolfhart Hauser, who points to structural drivers such as increasing safety regulations and the expanding middle class in emerging markets. Brokerage Citi has nudged up its full-year earnings per share forecast by 1 per cent to 139p (flat on 2013).
| INTERTEK (ITRK) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,811p | MARKET VALUE: | £4.5bn | |
| TOUCH: | 2,809-2,810p | 12-MONTH HIGH: | 3,418p | LOW:2,502p |
| DIVIDEND YIELD: | 1.7% | PE RATIO: | 23 | |
| NET ASSET VALUE: | 454p* | NET DEBT: | 87% | |
| Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 1.1 | 128 | 54.2 | 15 |
| 2014 | 1.0 | 120 | 51.8 | 16 |
| % change | -6 | -6 | -4 | +7 |
Ex-div: 01 Oct Payment: 14 Oct *Includes intangible assets of £915m, or 567p a share | ||||
