Intertek: margin recovery underlines the investment case

Specialist quality control provider Intertek (ITRK) has always been able to make the case that its quality assurances services are needed, come rain or shine, for companies that carry out controlled testing and product development. And if these results, which showed the highest like-for-like sales growth in a decade of 6.2 per cent, are an accurate guide, then Intertek has earned its bragging rights.  

Demand seemed to be highest for Intertek’s inspection and certification services (ATIC) division. The biggest growth rates were in areas such as corporate assurance and health & safety where legislation is the main driver of regulation and inspections. For example, in health & safety sales at constant currency increased by 9.1 per cent to £326mn. It was a similar story in corporate assurance where 9.5 per cent of revenue growth to £477mn underlined the same trend.     

There was plenty of evidence that operational gearing is currently working in the company’s favour. Cash conversion was an impressive 122 per cent, resulting in cash from operations of £749mn, which allowed the company to reduce its overall net debt by £127mn.

Even given the slower-moving consumer products division, management expects like-for-like sales for this year in the mid-single-digit range, along with a dividend payout ratio of 65 per cent of earnings.

FactSet consensus currently has Intertek on a forward price/earnings ratio for this year of 21, falling to 19 for 2025. An ongoing recovery in margins as we go through the year underpins the investment case for what is a very consistent company. The need for constant compliance and assurance is not going to disappear. Buy.

Last IC view: Buy, 4,360p, 28 Jul 2023