Intertek – Marginal Disappointment, Material Fall

Published on
  • Intertek Group plc (LON:ITRK)’s interim results showed a business recovering strongly from the depths of pandemic-induced recessions around the world.

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Q2 2021 hedge fund letters, conferences and more

  • Revenues accelerated toward the end of the period to an underlying pace of 12%, but for the six months as a whole, underlying revenues only rose by 5.8% before currency impacts.
  • Cash flow was strong, with Intertek hitting a conversion rate of 135% and earnings per share rose by 24% to 78.2p. The company declared an unchanged dividend of 34.2p per share.
  • The shares reacted cautiously, dropping 6.9% in early trade, with analysts focusing on a lower than expected recovery in profit margins in the first half.

Intertek's H1 Earnings

Commenting on the numbers, Steve Clayton, fund manager of the HL Select UK Growth Shares fund, which holds Intertek said:

“These interims were always going to be a tough act for Intertek to pull off. Demand has been highly volatile and only relatively recently translated into robust growth. But expectations for Intertek’s ability to translate any recovery into higher margins were high. So far, the group is lagging a little on the margin front, even though pretty much all parts of the business are now seeing demand bouncing back.

Full year forecasts are likely to edge down, so no surprise to see the market pushing the stock lower. But this risks missing the point. There is a quiet revolution going on in business, as firms start to put net zero plans into place. Intertek has a vital role to play here, with its ability to provide quality assurance of supply chains and audits of key environmental performance data. In short, there are whole new markets opening up for the business and the shares should increasingly recognise the potential of these opportunities, as well as the issues the existing business faces day to day.

Chief Executive Andre Lacroix might feel like he is shouting into the wind today, when he talks about the group’s future growth potential, given how the shares have reacted, but sooner or later the wind will have died down and the potential for Intertek to profit from assisting businesses move to net zero will be ever clearer.”

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