Investment Column: It's all about health and safety at Intertek

Rentokil Initial; Hornby

Our view: buy

Share price: 1,990p (+75p)

Companies are not usually fond of new regulations, as they often bring new costs. But new rules mean more business for Intertek, whose stock-in-trade is testing the quality and safety of products to make sure that they meet the required standards.

Yesterday, it posted what analysts regard as strong half-yearly results. Beyond the headline figures – group revenues were up 17 per cent, while pre-tax profits rose by 14 per cent – we were particularly encouraged by the divisional breakdown.

The commodities business, which provides services such as independent cargo inspection, grew operating profits by around 20 per cent, while the industry and assurance arm, which is being bolstered with the integration of the recently bought Moody International technical services business, proved even stronger.

On the downside, the consumer goods division, which serves the textiles and toys industries, was not as strong, with revenues rising, but operating profits and the operating margin easing. Part of this was down to weakness in China, which offset strong growth in Turkey, Vietnam, Bangladesh and Korea. And although this may prompt concern in some quarters, we think Intertek's international spread should help it to regain its composure, not least because it has been investing in new facilities and activities.

In fact, the company's international reach, and the diverse nature of its operations, are its most attractive features. This means that it is well placed to live through temporary weaknesses in one sector or geography, something that is particularly valuable in light of today's changeable economic backdrop.

The valuation is also supportive. Although at first glance it may look a tad pricey at nearly 19 times forward earnings, it is important to remember that Intertek still lags behind its closest peer, SGS, which trades on more than 20 times. The strong growth, coupled with the valuation gap, give us confidence to keep buying.

Rentokil Initial

Our view: avoid

Share price: 89.5p (-2.3p)

It has been a tricky few years for Rentokil Initial, and despite promises of an imminent turnaround, it is not yet time for any but the most harum-scarum of investors to take the plunge.

Although it saw a first-half revenue boost from its textile and pest-control businesses, Rentokil posted an overall drop in pre-tax profits last week. The problem is its City Link parcel delivery operation, which saw operating losses nearly triple to £17.8m after more than three years in the red.

True, Rentokil Initial chief executive Alan Brown blamed lost customers and the winter snows for City Link's tardy turnaround. It is also true that the new City Link management team of David Smith and Robert Peto – both from Royal Mail – does inspire confidence. And the results did come in marginally higher than analysts' expectations.

But Rentokil Initial's forecast of a return to profit in the fourth quarter and a possible dividend next spring does not convince us yet. It is just the latest of a string of such promises from a company that has not paid a dividend since 2008.

That said, the shares, which have underperformed the market by 23 per cent over the past 12 months, are already pricing in a hefty slab of risk. So, although Rentokil Initial is one to avoid for the moment, it is worth watching nonetheless.


Our view: buy

Share price: 137p (+0.75p)

A profit warning is not the best way to start the year, but that is what happened with Hornby in January. Part of the cause was supply shortages, so the news – released with its full-year results in June – that the issues had been resolved was a major relief.

Yesterday's interim management statement from the toy maker confirmed that the supply-chain problems had not re-emerged, a major boon considering that it is hoping to benefit from London 2012 fever with a number of tie-in products. The company also revealed that it was enjoying a year-on-year sales rise in both the UK and the rest of Europe.

House broker Numis is predicting a full-year pre-tax profit of £7.4m, which would be £3m ahead of the previous 12 months. Much will depend on Christmas, but the resolution of supply-chain issues, plus the expected boost from next year, points to a positive outlook for the shares.

ebooksAn unforgettable anthology of contemporary reportage
CSKA Moscow celebrate after equalising with a late penalty

Arts and Entertainment
Life and Style
Designer Oscar de la Renta takes a bow after showing his Spring 2015 collection in September, his last show before his death
fashionThe passing of the legendary designer has left a vacancy: couturier to America’s royalty, says fashion editor Alexander Fury
Life and Style

Company reveals $542m investment in start-up building 'a rocket ship for the mind'

Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell