EUR 850.00 For Business Accounts Only

Morningstar | A Slightly Soft Trading Update From Narrow-Moat Intertek

Narrow-moat tester Intertek produced a slightly underwhelming trading update for the first four months of the year, with organic revenue growth of 3.3%. While this level of growth is not completely out of step with the rate delivered over the last few years, it is a small climbdown from the 3.7% delivered in fiscal 2018, and given the improving operating environment in sectors such as oil and gas, one would have expected a slightly higher level of growth at this point in 2019. We are not making any changes to our estimates yet, however, given there is plenty of time remaining for growth to pick up in 2019. We reiterate our GBX 3,900 fair value estimate and believe the shares are currently overvalued

Divisionally, organic revenue growth was a mixed bag. Resources improved materially from 2018, rising to almost 3%, a level we did not expect to see for another year or more. Trade led the group with growth of over 5%, more than twice the level achieved in fiscal 2018. Products, which generate 60% of group revenues, had a sharp climbdown from prior year levels, with growth of just 2.6%. This is also well below the 4.1% of peer Bureau Veritas. While this most likely does not indicate any longer-term negative trends, given the underlying quality and strength of Intertek’s consumer business, we will be monitoring the situation vigilantly in future.

Intertek, as one of the few globally diversified TIC players, is well positioned to take advantage of several long-term structural trends. These include the shift toward outsourcing, the increase in product complexity and testing requirements, and increased demand for consumer goods testing in emerging markets.