Intertek “robust” in face of challenges

The word “robust” appears 21 times in Intertek’s (ITRK) half-year results. Despite sounding rather monotonous, the adjective gives a fair impression of the testing specialist’s performance over a tricky six months. 

Sales and adjusted operating profits have risen across Intertek’s three segments: products, trade and resources. Products is by far the largest division – generating two-thirds of group revenue – and growth here is reassuringly strong. Revenue is up 16 per cent at actual rates, while adjusted operating profit has risen by 7.2 per cent. 

The performance of Intertek’s resources arm is an added bonus. Resources' Adjusted operating profit fell by 22 per cent in 2021, but is now showing signs of recovery, growing by 6.5 per cent to £11.4mn. Management noted a “significant increase in demand” within the division, fuelled by the “global recovery in the oil & gas industry”.

Intertek expects energy to be a major source of growth going forwards, and has announced the acquisition of Clean Energy Associates, a quality assurance provider in the solar energy sector.

It hasn’t all been plain sailing, though. Around a fifth of Intertek’s sales come from China, which has been subject to strict lockdown restrictions. This suppressed the group’s organic growth: like-for-like revenue growth stands at 4.9 per cent across the group (at constant rates) but reached 7.1 per cent outside of China. 

Intertek said business in Shanghai had been operating as normal since 1 July. However, the lockdowns – together with inflationary pressures more generally – have squeezed margins, which are expected to be “slightly below” 2021 levels. A 4 per cent dip in Intertek’s share price on results day also suggests that investors are disappointed by the dividend, which is the same as last year's. 

The group's growth story remains convincing, however. Still, expectations about quality, safety and sustainability are growing ever more prominent, and businesses will need the help of experienced specialists. Buy. 

Last IC View: Buy, 4,899p, 26 May 2022