JP Morgan ups rating on Intertek to 'overweight'

JP Morgan has upped its recommendation on Intertek Group to ‘overweight’, arguing that its current valuation was unjustified relative to its peers.

In a review of the European business services sector, analyst Sylvia Barker said of the testing and product certification specialist: "We expect the news to improve at Intertek, which has later-cycle exposures.

"Before the Covid crisis, we were in a period of modest but consistent top-line growth, when incremental improvements to sales, expenses management and cash collection made a difference.

"Intertek excelled in that environment, earnings itself a premium versus peers, which we expect to return."

She concluded: "We now believe Intertek’s relative valuation to its peers is unjustified and note a return to pre-Covid growth, cash collection and cost management will drive a re-rating. Hence, we upgrade the shares [from ‘neutral’]."

The bank has a price target of 6,400p on the London-listed stock.

JP Morgan said Intertek’s forward earnings per share were 4% below end-19 versus France’s Bureau Veritas, which are 2.5% lower, and Swiss rival SGS, up 3% (including M&A). Intertek’s shares trade on a 24x 22 P/E similar to Bureau Veritas and versus SGS on 26x.

As at noon GMT, shares in Intertek were ahead nearly 2% at 5,298.0p.