HSBC lifts Intertek target price, highlights risks from trade protectionism

HSBC raised its target price on shares of Intertek sharply higher even as it enumerated a long list of potential headwinds which the company might face.

The inspection, product testing and certification outfit had been hit by poor demand from the resources sector and organic sales growth was in fact 0.2% down during the second half of 2016 - despite favourable FX.

In the opinion of the broker, that decline highlighted the inherent growth challenges the company faced.

So while the London-based company had already moved to sell the worst performing bits of its franchise, booked write-downs, shifted focus towards more product testing and certification and opened up a new front in outsourced quality assurance, more was left to do in terms of 'self help' to drive the share price.

HSBC also called attention to the risks the firm faced from growing trade protectionism, pointing out how the highest margins were derived from Emerging Markets, versus developed economies.

Thus, profitability could be affected materially, the broker said.

A possible border-adjusted cash flow tax in the States, a re-negotiation of NAFTA and other policies might also dampen demand and pricing, the broker said.

So while the target price was raised from 3,140p to 3,520p the recommendation was kept at a 'Hold'.