- Resources arm bounces back
- Flat dividend
Quality control specialist Intertek (ITRK) has disappointed shareholders after narrowly missing consensus profit forecasts. The group managed to grow its adjusted operating profit by 4 per cent year on year to £520mn, but didn’t quite hit the predicted £522mn, and the shares dipped by 4 per cent in response.
China – which typically generates about a fifth of Intertek’s revenue – was a big part of the problem, with management lamenting lockdown restrictions and revenue headwinds between March and June, as well as increased sickness in November and December. Confidence has grown as China has started to reopen, however, and Intertek said the country has been operating with normal staffing levels since the beginning of the year.
While growth across the group has been rather sluggish, Intertek’s resources arm, which serves energy providers, seems to be thriving. Revenue jumped by 10 per cent at constant rates, while adjusted operating profit shot up by 51 per cent. It’s important to remember that 2021 was a particularly hard year for the division, but this is encouraging nonetheless. Management said growth was fuelled by increased capex investments from energy clients in oil, gas and renewables, as well as by higher demand in minerals. This arm of the business is highly cyclical, but for now it is giving profits a welcome boost.
Adjusted operating margins came under pressure in 2022, falling from 17 per cent to 16.3 per cent year on year. However, management expects this to improve in 2023 and said it is on track to deliver mid-single-digit like-for-like revenue growth. While this doesn’t sound hugely exciting, we remain convinced that the reopening of China and post-pandemic supply chain changes will benefit Intertek in the long run. Buy.
Last IC view: Buy, 4,287p, 29 Jul 2022
| INTERTEK (ITRK) | ||||
| ORD PRICE: | 4,181p | MARKET VALUE: | £6.7bn | |
| TOUCH: | 4,178-4,183p | 12-MONTH HIGH: | 5,506p | LOW: 3,485p |
| DIVIDEND YIELD: | 2.5% | PE RATIO: | 23 | |
| NET ASSET VALUE: | 796p* | NET DEBT: | 80% | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 2.80 | 405 | 177 | 99.1 |
| 2019 | 2.99 | 445 | 195 | 105.8 |
| 2020 | 2.74 | 344 | 154 | 105.8 |
| 2021 | 2.79 | 413 | 179 | 105.8 |
| 2022 | 3.19 | 420 | 179 | 105.8 |
| % change | +15 | +2 | +0 | - |
| Ex-div: | 25 May | |||
| Payment: | 15 Jun | |||
| *Includes intangible assets of £1.8bn, or £11 a share | ||||
