LONDON (ShareCast) - (Sharecast News) - Shares in quality assurance firm Intertek were firmly in the red early on Friday as investors looked past a resilient H1 performance to focus on mounting FX pressures and trimmed growth expectations across several business units.
Intertek said H1 revenues rose 4.5% at constant currency to £1.67bn, while like-for-like growth was led by its consumer products and corporate assurance units. Adjusted operating profits climbed 9.7% to £276.3m, and earnings per share rose 12.6% at constant rates. Margins improved by 80 basis points to 16.5% and the FTSE 100-listed group also said it had maintained strong cash conversion at 118%, generating £266m in adjusted operating cash flow.

However, foreign exchange headwinds overshadowed Intertek's performance as it warned FX would now create a 350-basis-point headwind to revenues and a 500-basis-point headwind to earnings, up from previous estimates of 250 and 350 basis points, respectively.

Intertek also said its Health & Safety, Industry & Infrastructure, and World of Energy divisions all fell short of quarterly expectations, with the latter reporting flat organic growth against consensus estimates of a 1.6% increase.

Looking ahead, Intertek said it was on track to meet medium-term targets, including mid-single digit revenue growth and margins above 18.5%, but a decline in adjusted operating margins in its energy, I&I, and H&S divisions, as well as cuts to full-year organic growth guidance from mid-single digit to low in H&S and I&I, weighed on the stock at the open.

Analysts at Shore Capital said: "The business Assurance, Testing, Inspection, Certification Services specialist (ATIC) has reported H1 results which feel a little light to our expectations, but no-doubt in the consensus range. We expect to retain our FY forecasts, noting this year's significant FX impacts on translation. The reporting style is as ebullient as ever, which, to our minds, gets in the way of deciphering the actual progress on growth and margins."

"We struggle to see where the valuation upside for Intertek emerges in the medium-term. Our DCF derived fair value estimate remains in the 4500p/share range (FY25F FCF yield 4.3%). To upgrade our fair value meaningfully, we would have to accelerate revenue growth beyond the Group mid-single digit target inherent Intertek's guidance, noting the long-term organic growth performance achieved in recent years around the +3% to +4% level. Alternatively, higher margin assumptions could be made: sustaining the EBIT margin at 18.5% (the new stated ambition) to the terminal value year; yet is this tenable given competition, evolving markets and cycles?"

As of 1025 BST, Intertek shares were down 7.41% at 4,574p.



Reporting by Iain Gilbert at Sharecast.com

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