Intertek boosted by Kepler upgrade to 'buy'

Intertek got a boost on Monday as Kepler Cheuvreux lifted the stock to ‘buy’ from ‘hold’ and raised the price target to 4,600p from 3,935p ahead of the first-quarter results on 26 May.

“We are bullish on the testing, inspection and certification sector’s cyclical inflection, which Intertek’s management is poised to leverage via acquisitions and gradual productivity improvements from its 5x5 strategic initiatives.”

Kepler expects Intertek to report sales of £878m, a 13.5% year-on-year increase, including a 1% rise on an organic basis. It added that forex should remain strong in the first quarter and estimated an M&A contribution of 1.5%. It said the company’s 5x5 strategic initiatives are delivering quick results, allowing Intertek to free up cash that chief executive André Lacroix has promised to redeploy into earnings-accretive acquisitions.

“Leveraging the group to 2x EBITDA could buy up to £350-400m of sales or 13-14% more sales than currently assumed, leaving plenty of upside surprise potential up and above the ongoing cyclical recovery."

The new target price-to-earnings of 24x takes into account the ongoing momentum, the 13% compounding effects of forward-looking earnings growth and cash returns as well as the chances of upgrades, be it organic or M&A-driven.

At 1045 BST, the shares were up 2.2% to 4,257p.