Shore Capital downgrades Intertek to 'sell'

Shore Capital said the testing and assurance services specialist "likes to test our valuation thoughts", stating it "fundamentally like these activities", being "a necessary and growing element" within the global economy, underpinning quality companies' operations.

However, it stated growth rates were linked closely to GDP exposure and these services were delivered on a business-to-business basis in a competitive market, and noted that the margin ceiling was "surely determined by visible returns on capital".

"Reflecting on valuation metrics, is Intertek a growth or an income stock? FY23A results revealed a change to Intertek’s payout ratio from 2.0x to 1.6x from FY24F – the resulting upgrade brings the prospective dividend up to a yield at the current share price of 3.0%. Looking to future growth, however, our forecast model on a cash flow valuation basis suggests fair value at c.£42/share (downside of 15%) – a FY24F PER of 18.0x, reflecting mid-single digit growth metrics," said Shore Cap. "With no substantive change to forecasts, but a c.20% share price outperformance to the market over the past three months, we move to sell."

Reporting by Iain Gilbert at Sharecast.com