HSBC downgrades Intertek to 'hold'

"Whilst Intertek’s medium-term prospects are attractive, we think that H2 demand for Trade division might be negatively impacted by higher petrochemical prices, and we downgrade Intertek to ‘hold’ (from ‘buy’).

"We think the risk-reward balance for Intertek is less attractive compared to other opportunities in the sector."

In a sector note, the bank said the market considers testers as defensive and lower risk than the broader industrial space.

"It anticipated faster organic growth this cycle compared to 2012-19 as many of the previous headwinds have now dissipated (e.g. tariff wars, commodity downturn). Some investors also expect demand support from the broader industrial capex cycle to be a tailwind in the space, especially for Intertek and SGS."

However, HSBC thinks market expectations of faster growth are consistent with changing exposure and lack of headwinds.

"The inflationary market could even drive better organic growth and drop-through margin than currently expected owing to pricing power in supply chains.

"Whilst testers have experienced multiple contraction in anticipation of rate hikes, estimates for profit growth still do not reflect benefits of higher inflation.

"Our scenario analysis suggests the TIC names could have modestly lower downside in a recessionary scenario than other industrial names under our coverage (e.g. distributors)."

It also downgraded Swiss SGS to ‘hold’ from ‘buy’, while Eurofins was upgraded to ‘hold’ from ‘reduce’ and Bureau Veritas was kept at ‘buy'.

At 1240 BST, Intertek shares were down 2.6% at 5,178p.