Intertek rallies on double upgrade by Jefferies

Intertek was lifted by a double upgrade from Jefferies, which raised its stance on the stock to ‘buy’ from ‘underperform’ and upped the price target to 4,300p from 3,000p.

“Our recommendation is not predicated on a major near term beat. More, that we believe we should see from here a steady on-going improvement in a range of metrics, including organic growth, margins and free cash flow,” the bank said.

Jefferies said its analysis of margin levers provides a strong case for profit growth faster than revenues, while strong FCF allows it to formally model M&A.

“Looking ahead, we expect that the process around M&A will become more rigorous. Partly we expect that this will be a sector phenomenon as players shy away from deals in cyclical areas and anything related to commodities (both mining and oil and gas) and as multiples across the sector move up.”

Jefferies upped its full-year earnings per share estimate for 2017 to 188.10p from 170.80p.

The bank said its ‘underperform’ rating had been based on weakness in the trade division from a slower oil cargo business in 2016; lower for longer in oil and gas capex and opex activities in the resources business and concerns over sustainability of growth and margins in the products business.

Jefferies said updates from Intertek have confirmed some of these fears, but the products business remained resilient and margins have expanded on an organic basis.

At 0925 BST, Intertek shares were up 4.7% to 3,707p.