Intertek passes test after tough year

The first half of this year was testing for most companies but Intertek (ITRK) saw a strong rebound in its key division compared to last year and announced a £453m acquisition. Despite improved profits, the testing and quality assurance company, which covers dozens of sectors from oil and gas, to agriculture, toys and pharmaceuticals, has kept its interim pay-out level with last year. 

Intertek’s operating profit of £202m was more than a quarter ahead of last year, on a constant currency basis, but still fell short of consensus estimates of £217m. 

The product division, which contributes almost two-thirds of Intertek’s revenue and 85 per cent of earnings, is “back to the 2019 level”, chief executive André Lacroix said at last week’s analyst call. The division’s adjusted operating margin got close to the 2018 and 2019 mark of 21.3 per cent, at 20.9 per cent. Lacroix pointed to inflation as the reason sales had caught up but not the margin. 

The SAI Global Assurance acquisition, announced in May, will expand Intertek’s assurance business. A recent new client shows the breadth of the industry: SAI will work with the British Game Authority to make sure “shoots and game farms” signed up to the body stick to its rules. 

JPMorgan forecasts Intertek's adjusted earnings per share at 196p for the full year, up from 171p last year. 

Intertek has its finger in most industrial and manufacturing pies, and has forecast like-for-like revenue growth across all three divisions in the second half. Inflation could hit its margins but as Lacroix said last week, the company has “very strong pricing power” so should weather that storm as well. Buy. 

Last IC View: Buy, 5,528p, 31 Jul 2020