Morningstar | Slight Pickup in Growth for Narrow-Moat Intertek; Shares Overvalued
Narrow-moat Intertek delivered an upbeat trading statement with organic revenue growth picking up in the second half of the year, rising to 4.5% between July and October. Year to date, however, currency movements have gone against the company, with revenue declining 50 basis points, in-line with our estimates. As such, we do not expect to make any material adjustments to our numbers on the back of this update, and we reiterate our GBX 3,900 fair value estimate. We believe the shares are currently overvalued.In Intertek’s most important division, products, which generates around 60% of revenue and almost 80% of operating profit, growth remained relatively stable throughout the year at 6%. The pickup in revenue growth stemmed from its other two businesses, trade and resources, in which growth jumped more than 100 basis points, rising to 2.8% and 1.2%, respectively. For the resources business in particular, following a number of years of revenue declines on the back of weak oil prices, this is a welcome sign.
Intertek, as one of the few globally diversified testing, inspection, and certification 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.
Intertek Group provides Assurance, Testing, Inspection and Certification (ATIC) services. Co.'s segments comprised of Products, Trade and Resources. Co.'s products-related division consists of business lines that are focused on quality and safety of physical components and products, as well reducing risk through assessing the operating process and quality management systems of its customers. Co.'s trade division consists of three Global business lines, Cargo & Analytical Assessment, Government & Trade Services, and Agriculture business. Co.'s resources division consists of two business lines, Industry Services, and minerals business.
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