Stock of the week: Intertek
This week’s stock of the week is Intertek, a business to business services company which has built itself into a giant in the sector through years of acquisitions and steady growth. Despite slow global economic growth, the group has been experiencing increased demand for its inspection and testing services from many different sectors. However, parts of the business in recent years have come under pressure due to the tough environment in the commodities sector.
Results in March reported a rise in profit to £393.3m on the back of an 8% increase in revenue to £2.77bn and the dividend for the year was 71.3 pence. The CEO stated that the group remains on track with its “good to great” plan. Trading in the first four months continued well with organic revenue growth 4% higher on a constant currency basis.
The global quality assurance industry is worth $250bn and it has attractive structural growth prospects driven by corporate risk management, global trade flows, demand for energy, expanding regulations, more complex sourcing and distribution networks.
In addition, consumers are increasingly seeking higher quality and sustainable products which have served to further bolster the group. In emerging economies, quality and safety standards are a long way behind. However, as countries such as China raise these standards, we should see further growth potential for Intertek.
We consider the company’s activities as being relatively defensive but still well positioned to gain market share. Its exposure to commodities and oil will add an element of volatility. However, its other services cover a wide group of sectors in the global economy as well as operating in many geographic regions.
It is an acquisitive company with a good track record on integrating acquired firms into current operations and so we continue with our ‘buy’ recommendation for investors seeking capital growth and willing to accept a medium level of risk.