Activity picks up at Intertek

Quality assurance group Intertek (ITRK) has had a bit of a makeover. The FTSE 100 company revealed a new growth strategy at its capital markets day in May, and has changed the way it reports its results, giving a clearer breakdown of how different divisions are performing. 

The shake-up has coincided with an acceleration in top-line growth. Intertek achieved its highest level of organic sales growth – 7.1 per cent – for a decade in the first half of 2023. Meanwhile, adjusted operating profit increased by 13.3 per cent to £245mn, prompting a 10 per cent dividend hike. 

The group used to break its operations down into three, rather opaque categories: product, trade and resources. Following a review, however, disclosure has improved, and the results are interesting.

The large consumer products division – which tests things like textiles, toys and home appliances – had a lacklustre first half, with profits dipping by 4.3 per cent. However, this was more than offset by strong performances from divisions focusing on food, chemicals, construction and energy. 

The change in sales mix is impacting profitability, however. Operating margins currently sit at 15 per cent, compared with 16.9 per cent in the first half of 2019, and statutory profits still lag pre-pandemic levels. It is fair to ask, therefore, when the “significant structural growth drivers” that Intertek said will benefit “all of our business lines” will actually kick in, and when it could realistically achieve its “peak margin” of 17.5 per cent.

Management has assured investors that, post-Covid, “corporations will invest more in quality, safety, and sustainability, accelerating the demand for our [assurance, testing, inspection, certification] industry-leading solutions”. We still find this argument convincing, but will be keeping a close eye on the group’s progress. Buy. 

Last IC View: Buy, 4,181p, 28 Jul 2023