From 1 January to the end of April, Intertek's like-for-like revenue rose 4.8% to £911.5m. China accounts for 20% of group revenue and disruption there means LFL growth was 6.8% excluding the region.
The group expects performance in the first half to be impacted by Chinese lockdowns, but remains on track to meet full year expectations.
The shares were broadly flat following the announcement.
Intertek makes most of its money testing and certifying the quality of products and components - everything from children's toys to huge components on oil rigs. It's not too surprising to see performance on the up, given managing every inch in the supply chain is becoming more important for businesses.
Longer term, riding the global regulation wave remains a good place to be. Safety checks were already getting tighter across a wide range of industries and the pandemic has amplified that trend. With services to help companies prove they comply with new requirements, Intertek is well positioned to help.
The part of the business geared towards natural resources has tended to be more cyclical. Things have picked up as people take to the roads and skies once again. Meanwhile, buoyant commodity prices mean miners have been ramping up production, keeping the Minerals business supported. But increased costs have weighed on the Resources segment, as we saw margins decline despite a rise in sales.
Over the longer term the group's strategy calls for a shift towards higher-growth, higher-margin businesses. Such as ESG related monitoring, which should be a long-term growth driver. As businesses around the world are expected to give more details on their supply chains, demonstrating the environmental and social impacts is likely to become more important.
Assurance is another attractive business area, showing good growth, high margins and low capital requirements. So you can see why Intertek is looking for a bigger slice of the pie, splashing the cash to acquire SAI Global Assurance last year. However, the SAI deal came with a hefty price tag, pushing net debt north of £700m.
The group hopes to improve margins to boost profitability, but it will still take years for the deal to break even. If the group can capture a sufficient share of the growing assurance industry that won't matter - but large deals at high prices are risky, and integrating businesses is rarely as straight forward as management hopes.
We're also mindful of the impact of Chinese lockdowns. The region makes up about 20% of group revenue, so for as long as disruption lasts, Intertek will be held back from reaching its full potential.
Overall, we think Intertek has proven its resilience as a diverse and operationally sound business. The SAI deal remains a risk worth watching, but for now we are prepared to give management the benefit of the doubt. The group's valuation is is less demanding than it has been for a few years, but isn't immune from ups and downs.
The Share Research team is ceasing covering of Intertek. This is the last update and house view HL will produce on this stock. You can still find out more about our thought on market trends by signing up to our Share Insight email.
Intertek key facts
- Forward price/earnings ratio: 20.7
- Ten year average forward price/earnings ratio: 22.6
- Prospective dividend yield (next 12 months): 2.5%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Trading Statement (constant currency and excluding the effect of acquisitions)
Products benefitted from ongoing demand for agricultural solutions, and revenue rose 4.5% to £563.3m. There was growth in all areas apart from Transformation Technology. Including the contribution from acquisitions, revenue rose 7.0%.
Revenue rose 5.2% in Trade to £194.9m, following strong growth in the demand for Energy and Agri products. The crude oil and refined products trading markets are said to have grown thanks to ''increased global mobility and higher testing activities for bio-fuels''.
A recovery in the oil and gas sector helped Resources revenue rise 5.2% to £153.3m.
Intertek reiterated it's ''investing organically and inorganically to seize the attractive growth opportunities in the global quality assurance market and to strengthen our ATIC portfolio in high-margin, high-growth areas.''
Products, Trade and Resources are each expected to have ''robust'' revenue growth for the full year.
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