It’s impossible to keep track of every UK share I like and FTSE 100-listed Intertek Group (LSE: ITK) slipped off my radar some time ago.
Yet its shares have been doing well lately, rising 26.76% over the last 12 months. At least they were doing well until October. The Intertek share price has slumped 9.16% in a month. And that’s why it caught my eye.
I like buying UK blue-chips when they’ve had a bit of a blow, as it gives me a chance to pick them up at a reduced valuation. So is this my moment?
Why have the shares just dropped?
Intertek quietly goes about its business of testing, inspecting and certificating products, describing itself as a “Total Quality Assurance Provider to industries worldwide”.
It has a history stretching back 130 years, and now employs more than 40,000 people in over 1,000 locations across 100 countries.
It’s firmly plugged into the global economy, which this makes it pretty cyclical. When businesses are expanding and pumping out products, its services are in demand. Less so in a downturn. It took a real beating in the pandemic, for example.
Things have picked up since although the world isn’t exactly firing on all cylinders. I’m therefore pretty impressed by its 12-month growth figure. But what happened in October?
I assumed it must have posted disappointing results, but nope. Its last major update was on 2 August, when it published half-year results. These were pretty good, with operating profits, earnings per share and free cash flow all rising by double digits. Revenue grew 6.6% to £1.67bn at constant currency, although just 1.8% at actual rates.
Recent acquisitions were performing well, while its cost-cutting programme delivered £5m of savings, which are set to hit £11m over the year. Intertek has also been paying off borrowings, cutting net debt to £708m. A 118% cash conversion rate also impressed.
Instead, the damage was done by a note from RBC Capital Markets on 21 October. The broker downgraded its shares from Outperform to Sector Perform, and cut its price target from 5,200p to 5,000p. Today, the shares go for 4,744p, so that’s hardly the end of the world.
The stock is a little pricey
RBC praised recent performance but said Intertek now trades at “what we deem to be fair value”, while warning of a “less certain outlook” for 2025. Its long-term prospects appear strong but RBC would like a better entry point.
A total of 16 analysts offer one-year share price forecasts for Intertek, and they’ve set a median target of 5,380p. That’s up 13.79% from here. That suggests modest growth prospects and doesn’t blow my socks off. Nor does the trailing price-to-earnings ratio of 21.23. That’s notably above the FTSE 100 of average of around 15.4 times.
A price-to-revenue ratio of 2.3 suggests investors have to pay £2.30 for every £1 of sales the company makes. The trailing yield of 2.6% doesn’t grab me either.
An impressive 50.4% return on capital employed (ROCE) is more like it. That persuades me to keep close tabs on Intertek. At some point in the cycle, it will be a good time for me to buy it. Probably not in November though.
