Company Reports

After a long period of relative disappointment for investors, it appears that narrow-moat Intertek has finally turned a corner. Its March 5 full-year results confirm a strong finish to 2023, with like-for-like revenue up more than 6% and operating margins up 60 basis points. However, more important was the outlook, with management guiding to mid-single-digit organic revenue growth combined with a further improvement in the operating margin. We believe there is more upside for Intertek shares, with our GBX 5,700 fair value estimate lying comfortably above the prevailing share price.

Intertek is one of the largest companies globally in the testing, inspection, and certification, or TIC, sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, with many local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. Intertek’s scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat Intertek’s November trading update should provide reasonable assurance to investors that activity is still ticking along, despite the current macroeconomic malaise. Like-for-like growth decelerated, albeit marginally in the 4 months to the end of October, falling to just over 5%, from the 7% delivered in the first 6 months of the year. However, on the flip side of this was the news that operating margins are progressing, primarily on the back of price increases. Given the recent share price falls, our GBX 5,700 fair value estimate offers significant upside from here.

Intertek has lagged its peers for more than a year now, but narrow-moat Intertek is finally catching up in terms of performance. Like-for-like growth of more than 7%, combined with improving operating margins, marks a solid half-year set of results. We don’t expect to make any material changes to our forecasts on the back of this announcement. Our GBX 5,700 fair value estimate offers significant upside from the current share price.

After more than a year of relatively underwhelming results, narrow-moat Intertek has finally delivered something the market is excited about. Organic revenue rose by a very solid 6.5% in the first four months of the year. Having recently upgraded our forecasts and our GBX 5,700 fair value estimate, we see material upside from the prevailing share price.

Intertek is one of the largest companies globally in the testing, inspection, and certification, or TIC, sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, with many local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. Intertek’s scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat Intertek finished off full-year 2022 soundly. While organic revenue growth of 5% underwhelmed relative to peers Bureau Veritas and SGS, an almost identical outlook for all three companies in 2023 of mid-single-digit revenue growth and operating margin progression suggests that after a tough time during Chinese lockdowns over the year, the company has finally caught up. Although we expect to update our forecasts, we don’t expect this to have a material impact on our GBX 4,900 fair value estimate. We believe Intertek is currently the most attractive opportunity in the testing, inspection, and certification segment.

Under normal circumstances organic revenue growth of 5.6% for the period July to October would be considered a win. Unfortunately for narrow-moat Intertek, its peers SGS and Bureau Veritas have in the last month also reported numbers closer to 7% and 9% respectively, casting Intertek’s update in a negative light. Ultimately, we believe the differential here is down to idiosyncrasies of the companies, in particular Intertek’s higher exposure to the production of consumer goods in China, which was heavily disrupted in the first half of the year. However, it makes little difference to investors, who recently soured somewhat on Intertek. With the share price languishing, we see this as a rare opportunity to acquire one of the three big diversified testing players at a material discount to our GBX 4,900 fair value estimate.

Intertek is one of the largest companies globally in the testing, inspection, and certification, or TIC, sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, with many local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. Intertek’s scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat Intertek reported a decent set of first-half results. Organic revenue growth was close to 5%, while operating margins were down 70 basis points at 14.6%, hit by Chinese lockdowns, an issue that also affected peers SGS' and Bureau Veritas' recent results. All in all, there was little in the statement to change our view on the stock. Relative to our GBX 4,420 fair value estimate, we believe the shares are fully valued.

Narrow-moat Intertek produced a decent update for the first four months of the year, with like-for-like revenue growth close to 5%, and management reaffirming its positive albeit qualitative outlook for the reminder of the year. With this number in line with our full-year expectations, we do not anticipate making any material changes to our forecasts on the back of this update. We reiterate our GBX 4,420 fair value estimate. With the share price coming off by around 20% since the start of the year, we now believe the price sits where it should be relative to our fair value estimate.

Intertek is one of the largest companies globally in the testing, inspection, and certification, or TIC, sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, with many local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. Intertek’s scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Having lagged peers for much of 2021, narrow-moat Intertek finished off 2021 reasonably well, posting organic revenue growth of 5.6% and a 130 basis points improvement in underlying operating margins. While this is a marked gain on 2020, unlike peers Bureau Veritas and SGS, however, Intertek is still sitting below its pre-pandemic revenue and profit levels. We believe this is primarily related to idiosyncrasies in Intertek’s end market exposures, which seem to be recovering more slowly than those of peers, rather than any structural issues at the company. It is our expectation that Intertek will recover this lost ground over the course of 2022, and today’s numbers don’t do anything to change our view on this. We reiterate our GBX 4,420 fair value estimate. Despite the stock selling off from the highs reached in April last year, we believe the shares still sit in overvalued territory.

Investors have thus far been relatively underwhelmed by narrow-moat Intertek’s post-coronavirus performance, with the numbers this year lacking the recovery bounce that peers Bureau Veritas and SGS have been reporting. Its third-quarter update will not do much to alleviate that in our view, with underlying revenue growth up 6.2%, which in reality means revenue for the period still sits below 2019 levels. We believe this is primarily related to idiosyncrasies in Intertek’s end-market exposures, which seem to be recovering more slowly than those of peers, rather than any structural issues at the company. As such, we do not plan on making any changes to our forecasts on the back of this update, and reiterate our GBX 4,420 fair value estimate. Despite the stock selling off from the highs reached this time last year, we believe the shares still sit in overvalued territory.

At first blush, narrow-moat Intertek’s half-year results don’t look half-bad. Underlying revenue rose by almost 6%, while operating margins were up 260 basis points year over year to 15.3%. In the context of an 8% underlying fall in revenue in the first half of 2020, however, investors could have expected more from today’s update in the way of a recovery. Management’s guidance for the full year also doesn’t give us much of a steer as to how the rest of the year is shaping up; however, we believe the first-half performance is at least tracking in line with our expectations.

Intertek is one of the largest companies globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, with many local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. Intertek’s scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

As we lap the beginning of the coronavirus pandemic in 2020 company reporting gets more and more difficult to interpret, and narrow-moat Intertek Group is no exception. Life-for-like revenue increased by 2.7% year to date in 2021, but within this figure was a 4.1% year-over-year decline from January and February, combined with a 9.3% increase for March and April, as we begin to lap easier comparatives. Ultimately though, our take from this is that the picture is improving, with 2021 set to show like-for-like revenue growth and margin improvement on the prior year. We do not expect to make any material changes to our forecasts on the back of this update, and reiterate our GBX 4,100 fair value estimate. Despite the shares' recent dip, we believe they still remain in overvalued territory.

Intertek is one of the largest companies globally in the testing, inspection, and certification sector, with global operations servicing a variety of sectors. The TIC market is highly fragmented, with many local or regional players that lack the capabilities to operate across multiple industries and geographies; as such, they struggle to successfully service the needs of multinational companies. Intertek’s scale allows the company to leverage its network of industry experts and testing sites to offer a broad service and bid for large multiyear contracts.

Narrow-moat Intertek Group followed closely behind peers SGS and Bureau Veritas in reporting its full-year results, with the figures and themes very much in line with what we have seen from the other two. Revenue fell by close to 7%, with operating profit and EPS down closer to 20%. The contrast between the first and second half of the year was sharp, with operating margins recovering by 570 basis points to 18.4% in the second half. We do not expect to make any material changes to our GBX 4,100 fair value estimate on the back of this update and believe the shares sit firmly in overvalued territory.

Narrow-moat Intertek’s third-quarter update showed some slight signs of improvement, with like-for-like revenue down 6.3% year over year in the July to October period. This was down from an 8% decline at the half-year point, but worse than results most recently reported by peers Bureau Veritas and SGS, although timing here may explain some of the negativity. With the company’s outlook for the full year providing little in the way of surprises, we view today’s negative market reaction as indicative of the high expectations baked into the current share price. At an almost 40% premium to our GBX 4,100 fair value estimate, we believe the shares to be deep in overvalued territory.