Shore Capital downgrades Intertek to 'sell'

Analysts at Shore Capital Markets downgraded British testing and assurance firm Intertek from 'hold' to 'sell' on Friday, stating it now anticipated a "slightly negative" earnings performance for 2020.

Shore Capital noted that Intertek was due to report on "robust development" across its operations on 3 March and said that, as always, it expects to see some differences in the growth mix, but with good recovery coming through and some firm margin progress.

"We like Intertek and believe that group has solid long-term prospects in a market-driven by technology evolution and by ratcheting up compliance and regulation," said the analysts.

However, with significant exposure to revenue flow from China, Shore Cap felt it was time to cut its forecasts for the current year given that the economic effects related to the Wuhan coronavirus would likely impact Intertek with negative operational leverage.

Shore Cap reduced its 2020 full-year revenue estimates for Intertek by £70m, which cut its underlying earnings forecasts by roughly £30m to £525m. Pre-tax profits fell back 6% to £486m and earnings per share slid from 223p to 209p.

"We also lower our FY2021F, taking a cautious view, with EPS falling from 237p to 226p (-5%), but with growth remerging," said the analysts.

Shore Cap also noted that until greater guidance with visibility emerges, it couldn't rule out further forecast reductions.